Does world-level volatility matter for the average firm in a global equity market?

Volatility components for an average stock in the global equity market are derived in this study. Using a variance decomposition approach, we obtain a time series of firm-level, global-industry (country) level, and world-level volatility. Each volatility components is found to be time-varying with f...

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Bibliographic Details
Published in:Journal of multinational financial management 2003-12, Vol.13 (4), p.341-357
Main Authors: Sequeira, John M., Lan, Dong
Format: Article
Language:English
Subjects:
Capital market
Countries
Country effect
Economic integration
Enterprises
Finance
Globalization
Industry
Industry effect
International finance
Management
Stock returns
Time series
Variance decomposition
Volatility
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Summary:Volatility components for an average stock in the global equity market are derived in this study. Using a variance decomposition approach, we obtain a time series of firm-level, global-industry (country) level, and world-level volatility. Each volatility components is found to be time-varying with firm-level volatility being the most important component of aggregate volatility. Our results find no evidence of any trend in firm-level volatility. Interestingly, we also discover that country factors are more important than industry factors in explaining the total variation in international stock returns.
ISSN:1042-444X
1873-1309
DOI:10.1016/S1042-444X(03)00015-X