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International Financial Connection and Stock Return Comovement
Author:
Mr. Sakai Ando
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https://orcid.org/0000-0003-2785-4375
Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 181
Language:
English
Publication Date:
22 Aug 2019
DOI:
https://doi.org/10.5089/9781513509822.001
ISBN:
9781513509822
ISSN:
1018-5941
Pages:
33
Keywords:
WP; risk tolerance; stock return comovement; international investment position; risk-on; risk-off; comovement variable; portfolio investment position; stock return correlation; asset data; stock return behavior; portfolio investment data; comovement data; asset economy; equity return; Stocks; Portfolio investment; Stock markets; Foreign direct investment; Bond yields; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper studies whether bilateral international financial connection data help predict bilateral stock return comovement. It is shown that, when the United States is chosen as the benchmark, a larger U.S. portfolio investment asset position on the destination economy predicts a stronger stock return comovement between them. For large economies such as the United States and Germany, the portfolio investment position is also the best predictor among other connection variables. The paper discusses with a simple general equilibrium portfolio model that the empirical pattern is consistent with the behavior of index investors who trade in response to risk-on/risk-off shocks.
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IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund