Domestic factors were important than international factor, Financial Management

Why do you think the empirical studies as regards factors influencing equity returns mainly showed that domestic factors were more significant than international factors, and, secondly, that industrial membership of a firm was of little significance in forecasting the international correlation structure of a set of international stocks?

Answer:  When national security markets have become very much integrated in recent years, there is still a remarkable amount of segmentation that brings about the advantage to be derived from international diversification of financial assets.  Monetary and fiscal policies be different among countries due to different economic circumstances.  The economic policies of a country directly influence the securities traded in the country, and they will behave in a different way than securities traded in another country along with other economic policies being implemented. Therefore, it is not surprising that domestic issues are found to be more important than international factors in influencing security returns. Likewise, industrial activity within a country is as well affected by the economic policies of the country; so firms in similar industry group, but from different countries, will not necessarily behave similar in all countries, nor should we suppose the securities issued by these firms to behave alike.

Posted Date: 5/9/2013 4:14:24 AM | Location : United States

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