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Has the Pricing of Stocks Become More Global?

Author

Listed:
  • Ivan Petzev

    (University of Zurich)

  • Andreas Schrimpf

    (Bank for International Settlements (BIS))

  • Alexander F. Wagner

    (University of Zurich, Centre for Economic Policy Research (CEPR), European Corporate Governance Institute (ECGI), and Swiss Finance Institute)

Abstract
We show that in recent years global factor models have been catching up significantly with their local counterparts in terms of explanatory power (R2) for international stock returns. This catch-up is driven by a rise in global factor betas, not a rise in factor volatilities, suggesting that the effect is likely to be permanent. Yet, there is no conclusive evidence for a global factor model catch-up in terms of pricing errors (alpha) or a convergence in country-specific factor premia. These findings suggest that global financial markets have progressed surprisingly little towards fully integrated pricing, different from what should be expected under financial market integration. We discuss alternative explanations for these patterns and assess implications for practice.

Suggested Citation

  • Ivan Petzev & Andreas Schrimpf & Alexander F. Wagner, 2015. "Has the Pricing of Stocks Become More Global?," Swiss Finance Institute Research Paper Series 15-48, Swiss Finance Institute, revised Apr 2016.
    • Handle: RePEc:chf:rpseri:rp1548
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    File URL: http://ssrn.com/abstract=2693024
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    Cited by:

    1. Malamud, Semyon & Malkhozov, Aytek, 2016. "Market Integration and Global Crashes," CEPR Discussion Papers 11468, C.E.P.R. Discussion Papers.
    2. Matteo Barigozzi & Marc Hallin & Stefano Soccorsi, 2017. "Identification of Global and National Shocks in International Financial Markets via General Dynamic Factor Models," Working Papers ECARES ECARES 2017-10, ULB -- Universite Libre de Bruxelles.

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    Keywords

    International Asset Pricing; Size; Value; Momentum; Financial Integration; Factor Models;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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