Return Comovement Rankings
David Parsley and Helen Popper
Abstract
We examine the intra-market comovement of returns within each of 33 economies' stock exchanges operating from 1995 through 2013, and we use a model-free comovement gauge to explore the di effences across the countries. We fi nd that the stability of international macroeconomic trilemma policies, the number of crises, and the extent of turnover overshadow the empirical relevance of many institutional variables previously thought to be important for intra-market comovement, including country risk, corruption, and investor protections.
We also use a much longer, nearly-constant sample of U.S. firms to examine compositional explanations of the well-known U.S. comovement decline, and to decompose the comovement into trend and cycle. The longer sample findings challenge the compositional explanations of the downward trend; additionally, they suggest that the most recent uptick reflects shorter-term conditions, rather than a trend reversal.
Together, these findings help to explain the dramatic changes in the relative rankings of countries' return comovement over the last several decades.