Cross-Industry Diversification: Integration, Bubble and Predictability
Posted: 26 Nov 2008 Last revised: 6 Apr 2015
Date Written: September 1, 2008
In this paper we analyze the relative importance of country and industry pure factors on the cross-section of stock returns. We show that, although the supremacy of industry factors, reported in a number of recent studies, is due to a time sample bias related to the so-called "technology bubble", the predictability level of pure factor returns and correlations seems to point to a more stable change in the structure of equity returns. We also introduce a regional factor and demonstrate that the vast majority of cross-country variation is, in fact, at the regional level.
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Keywords: portfolio diversification, factor models, economic integration
JEL Classification: G15, G11
Suggested Citation: Suggested Citation