Country factors in stock returns: Reconsidering the basic method

Y. Bai*

*Corresponding author for this work

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Abstract

Many studies show that country effects dominate in determining the stock return cross-sectional variations. After removing three potential distortions (domestic inflation rate, exchange rate and local risk-free interest rate), we find that the common practice of decomposing the nominal return converted into a single currency misestimates the importance of country effects, and hence may lead to incorrect inferences regarding portfolio diversification.

Original languageEnglish
Pages (from-to)871-888
Number of pages18
JournalApplied Financial Economics
Volume24
Issue number13
DOIs
Publication statusPublished - Jul 2014
Externally publishedYes

Keywords

  • country factor
  • emerging stock market
  • exchange rate
  • inflation rate
  • risk-free interest rate

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Bai, Y. (2014). Country factors in stock returns: Reconsidering the basic method. Applied Financial Economics, 24(13), 871-888. https://doi.org/10.1080/09603107.2014.909571