A New Partial-Segmentation Approach to Modeling International Stock Returns

G. Andrew Karolyi, Ying Wu

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

We propose a new multi-factor model for international stock returns that includes size, value, and momentum factor portfolios and that builds them in a partial-segmentation capital market framework. Accounting for externalities driven by the incomplete accessibility to stocks and stock markets, our model not only captures strong common variation in international stock returns but also achieves low pricing errors and rejection rates relative to pure segmentation and pure integration models. This partial-segmentation approach is evaluated using monthly returns for over 37,000 stocks from 46 developed and emerging market countries over 2 decades and for a wide variety of test assets.

Original languageEnglish
Pages (from-to)507-546
Number of pages40
JournalJournal of Financial and Quantitative Analysis
Volume53
Issue number2
DOIs
StatePublished - 1 Apr 2018

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