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Have World, Country, and Industry Risks Changed over Time? An Investigation of the Volatility of Developed Stock Markets

Published online by Cambridge University Press:  06 April 2009

Miguel A. Ferreira  and
Paulo M. Gama
Miguel A. Ferreira
Affiliation:
miguel.ferreira@iscte.pt, ISCTE Business School-Lisbon, CEMAF/ISCTE, Complexo INDEG/ISCTE, Av. Prof. Anibal Bettencourt, 1600–189 Lisboa, Portugal
Paulo M. Gama
Affiliation:
pmgama@fe.uc.pt, ISCTE Business School-Lisbon, University of Coimbra, Faculdade de Economia, Avenida Dias da Silva, 165, 3004–512 Coimbra, Portugal.
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Abstract

This paper uses a volatility decomposition method to study the time-series behavior of equity volatility at the world, country, and local industry levels. Between 1974 and 2001, there is no noticeable long-term trend in any of the volatility measures. Then in the 1990s there is a sharp increase in local industry volatility compared to market and country volatility. Thus, correlations among local industries have declined. More assets are needed to achieve a given level of diversification, and there is more of a penalty for not being well diversified by industry. Local industry volatility leads the other volatility measures.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 1 , March 2005 , pp. 195 - 222
Copyright
Copyright © School of Business Administration, University of Washington 2005

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