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Global Stock Return Comovements: Trends and Determinants

April 11, 2018
Kei-Ichiro Inaba*


This article analyses global stock return comovements for 37 advanced and emerging countries over the period 1996-2015. The article reports that the comovements were greater in advanced countries than in emerging ones, but increased more rapidly in emerging countries than in advanced ones. Such comovements had upward and downward trends in 23 and 7 of the sample countries, respectively. The driving forces behind these comovements were country fixed effects and country-specific time-varying factors. These factors include the increasing openness of international trade and finance, business climate, and institutional opaqueness, all of which worked in line with an information-driven comovement theory. The time-varying factors also include indicators representing monetary policy and capital controls, supporting a policy implication of a global financial cycle hypothesis: a monetary policy dilemma.

JEL classification
F3; G1; O1

Financial globalisation; International portfolio diversification; Stock market comovements; Information-driven comovements; Global financial cycle

The author is grateful to Francis E. Warnock (University of Virginia), Hans Genberg (The SEACEN Centre), Takashi Fueno (SMBC Nikko Capital Markets), Costas Lapavitsas (SOAS, University of London), Sophie Van Huellen (SOAS, University of London), Yosuke Jin (Organisation for Economic Co-Operation and Development), Satoshi Urasawa (Cabinet Office, Government of Japan), Masashi Saito (International Monetary Fund), participants at the 75th Meeting of the EMEAP Working Group on Financial Markets, those at the 12th SEACEN-BOJ SEACEN Expert Group (SEG) Seminar/Meeting on Capital Flows, and Bank of Japan officials, including Tetsuya Hiroshima, Ryo Kato, Eiji Maeda, Ko Nakayama, Hideki Nonoguchi, Hiroto Uehara, and Yoichi Ueno, for their helpful comments on earlier drafts. The author greatly appreciates that Toshinao Yoshiba (Bank of Japan) perused a draft and made useful comments and editorial advices. The author is grateful to Kenrin Nishimura (Bank of Japan) for his research assistance on data-collection. The views in the article are those of the author alone and do not reflect those of the Bank of Japan. Any possible errors in this article are the exclusive responsibility of the author.

  • International Department, Bank of Japan.
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