Risky business

In a globally interconnected stock market, international investors are keen on finding out how the country-specific volatility of a market portfolio compares with global volatility risk factors in explaining stock pricing and returns on investment. Using daily total market return indices, market capitalisation, and exchange rate data from 21 developed countries, researchers Samuel Lin Xiang and KC John Wei found out that local market volatility risk is a negative pricing factor only in Spain and the UK. They also discovered that local market volatility is more effective than global market volatility risk factors in explaining the future returns on locally diversified market portfolios in developed countries.  

Title : Are Stock Market Returns Driven by Global Risk Factors or Local Market Volatility Risk around the World?

Source: Social Science Research Network