International Stock Return Comovements





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    • Bekaert and Hodrick are with Columbia Business School, Columbia University and NBER, and Zhang is with Johnson Graduate School of Management, Cornell University. We would like to thank Tim Vogelsang for providing code for the linear time trend test. We have benefited from discussions with and the comments of Lieven Baele, Mardi Dungey, Rob Engle, Cheol Eun, and Geert Rouwenhorst and from presentations at the AFA, Cornell, Rutgers, NYU, and the Wharton International Finance Workshop. Detailed comments from an anonymous referee and the acting editor (Michael Brandt) also greatly improved the paper. Zhang acknowledges financial support from the Lamfalussy Fellowship sponsored by the European Central Bank.


We examine international stock return comovements using country-industry and country-style portfolios as the base portfolios. We first establish that parsimonious risk-based factor models capture the data covariance structure better than the popular Heston–Rouwenhorst (1994) model. We then establish the following stylized facts regarding stock return comovements. First, there is no evidence for an upward trend in return correlations, except for the European stock markets. Second, the increasing importance of industry factors relative to country factors was a short-lived phenomenon. Third, large growth stocks are more correlated across countries than are small value stocks, and the difference has increased over time.