The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure

Abstract

This study looks at how much benefit comes from investing in different industries in different countries. Two recent papers by Roll (1992) and Heston Roanhorse (1994) have studied this problem, but they have discovered different results. With a new database called the Dow Jones World Stock Index, we thoroughly analyze the reasons for changes in countries and industries. The index covers 25 countries and 66 different industries. We found out that the type of industries in a country does not have a big impact on the changes in their stock market value. We also find differences in how much of the changes in industry index returns can be explained by the country and industry factors. We will talk about what this means for strategies to spread out investment globally. This text was published in 1998 by Elsevier Science S. a All rights are claimed for this work and are not available for use by others.