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International Financial Connection and Stock Return Comovement

International Financial Connection and Stock Return Comovement PDF Author: Mr.Sakai Ando
Publisher: International Monetary Fund
ISBN: 1513512692
Category : Business & Economics
Languages : en
Pages : 33

Book Description
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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