Country factors in stock returns: reconsidering the basic method

• Autores: Y. Bai
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 24, Nº. 13-15, 2014, págs. 871-888
• Idioma: inglés
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• Resumen

  • Many studies show that country effects dominate in determining the stock return cross-sectional variations. After removing three potential distortions (domestic inflation rate, exchange rate and local risk-free interest rate), we find that the common practice of decomposing the nominal return converted into a single currency misestimates the importance of country effects, and hence may lead to incorrect inferences regarding portfolio diversification.