Assignment: Developed Country and Industry Effects Essay

Submitted By JinWenWu1
Words: 1527
Pages: 7
Open Document
There are many researches with regard to the importance of country and industry effects for portfolio diversification before Phylaktis and Xia published their paper. Most of what these literatures have argued about are whether country effects or industry effects have more impact on the emerging and mature markets. On one hand, traditional studies (e.g. Lessard, 1974; Solnik, 1974; Heston and Rouwenhorst, 1994, 1995; Griffin and Karolyi, 1998) claimed that the country effects have dominated the industry effects. On the other hand, more recent researches (e.g. Baca et al. 2000, Cavaglia et al. 2000, L’Her et al. 2002, Brooks and Del Negro, 2004 and Flavin, 2004) have shown that in compare with the country effects, the industry effects are more crucial on portfolio diversification. Meanwhile, it has been suggested that in compare with the traditional diversification across countries, the international diversification across industries can provide greater risk reductions. By using different research methods, studies by Cavaglia et al. (2001) and Brooks and Del Negro (2003) both provided evidence on the connection of the dynamics of country and industry effects in firm level returns with the firm’s international activities. Unlike the paper by Cavaglia et al (2001), Brooks and Del Negro (2003)’s research did not find any remarkable statistical link between the industry factors and the extent to which firms operate internationally. All researches mentioned above focus on advanced market. However, the researches which concentrated on the sources of firms’ industry and country effects in emerging markets (e.g. Bekaert, 1995; Harvey, 1995; Bekaert and Harvey, 1995, 1997, 2000) ， Bekaert and Harvey (1997) have shown that the returns of emerging markets have significantly different characteristics from those of developed market. According to Bekaert and Harvey (1997), at least four distinguishing features of emerging market returns have been point out. Given those facts, one would expect the dynamics of country versus industry effects in emerging markets to be different from that in developed markets. Moreover, some existing papers have shown that ADR listings in aggregate foster greater integration of international capital markets. For example, according to Karolyi (2003), if ADR listings facilitate the acceleration of market integration, one would accept that domestic factors to matter less and global factors including industry ones to matter more for ADR firms. Furthermore, according to Brooks and Del Negro (2004), it is argued that the recent increase of industry effects is only confined to TMT - Technology, Media and Telecommunications – sectors and such an increase is due to IT bubbles.

The main contribution of Phylaktis and Xia (2006) is to find the reasons for the different behavior of emerging markets relative to developed markets by comparing the dynamics of emerging markets’ global, country and industry effects at the firm level. Compared to developed markets, emerging markets have higher country effects and lower global and industry effects, which explains why the global and industry effects surpass the country effects in developed markets whereas the country effects still dominate the global and industry effects in emerging markets when focusing on market level evidence. According to Phylaktis and Xia (2006), even though the dynamics of firms’ global, country and industry effects are different between emerging and developed markets, they are systematically linked to the firms’ foreign sale ratios and ADR listings. Nevertheless, the paper shows that the link between the firm’s factor effects and the TMT sectors is volatile and unstable over time.

By applying a factor model to a sample data of 1893 firms representing 37 countries within 24 industry categories from Jan 1990 to Dec 2002, the authors measure the global, country and industry effects in firm level returns. The starting point is the standard
Show More

Related Documents: Assignment: Developed Country and Industry Effects Essay

ECON401 Assign2 Essay

Assignment 2, version B 1. List and discuss some political and economic reasons for governments intervening in the markets. Arguments for government intervention take two paths: political and economic. Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers). Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers…

Words 1497 - Pages 6

FNM 3042 Assessment Guide

The Assignment Instructions 6 3. The Assignment Task 7 Marking of the Assignment The following table gives indications of the standard for particular ranges of marks. Grade Standard of work Between 0% - 49% The question will be answered to a basic level and be largely descriptive. Analysis will only include overtly obvious elements. Between 50% and 59% The answer will reflect a reasonable understanding of the subject and be based on a reasonable level of research and analysis. The assignment is…

Words 1148 - Pages 5

Essay on Lesson 6 Leaflet

Assignment 1 – Leaflet (part 1) • In your leaflet, you need to explain what the following trends (changes) mean and how they can/have affected a business: - Social trends - Technology trends - Ethical trends - Environmental trends * Always use your source list to show where you found your information. Assignment 1 – Leaflet (part 2) • In your leaflet, you will then have to show how any TWO of those trends will affect your startup business, as they have done with other businesses. • To do this you…

Words 434 - Pages 2

Plate Tectonics and Key Terms Topics Essay

Map of Canada | |Developed countries |What is Geography? | | | |Newly industrializing countries | |Chapter 3: Locating Places on a Map |Test #1: Canada & the World | |Developing countries…

Words 511 - Pages 3

Old Age and Technology Essay

aspects of our lives. Technology plays important role in three fields of our society: Robot, Computer, and Medical industry. First of all, technology is necessary to produce an innovative robot. The robot industry is entering a period of rapid growth recently. For example, it is expected that it may become a helper for the elderly and disabled people. Especially developed countries are trying to cope with the aging of its population. According to the Richardson (2007), the U.S and Japanese population…

Words 710 - Pages 3

Globalization of Enterprise Essay

2012 Nigel.S.Paltoo - A11904 10/9/2012 Globalization of Enterprise 715 GE Source:Flikr.com ASSIGNMENT COVER SHEET(to be completed by the student) | AIB student ID number: | A11904 | | | Student name: | NIGEL.S.PALTOO | | | Course name: | MBA -GENERIC | | | Subject name: | Globalization of Enterprise 715-GE | | | Subject facilitator: | Dr.Brian O'Toole | | | Teaching Centre: | NATIONS UNIVERSITY-GUYANA | | | No. of pages: | 17 | | |…

Words 3962 - Pages 16

Research Skill Essay

ITC105 Assignment 1 Template for 201330 RELEASE V3.0 _________________________________________________________ It is strongly recommended that you use this template to answer your assignment questions. Your assignments may be electronically marked and returned to you. You may use any other format but this will result in delays in the return of your assignment. Do not edit/delete these instructions. Keep your work in the spaces allocated. By using this template, you will be able to view the…

Words 3074 - Pages 13

Essay on International Trade Theories

CONTENTS Introduction............................................................................................................................................................................................................ 2 Comparative advantage theory ...................................................................................................................................................................... 3 What is the comparative advantage theory ................................…

Words 1702 - Pages 7

Essay Group Assignment 3 Aaron Leo Reuben NRE 601 Final Version

Assignment 4 – Group Assignment Palm Oil Dilemma in Indonesia Natural Resource Economics 601 – Lecturer: John Karasinski Word Count – 2,016 (not including Tables and Figures) Aaron Smith: 1662 4483 Leonardo Molinari: 1728 4820 Reuben Dias:1313 9900 Palm Oil Dilemma in Indonesia Group Assignment 2 Executive Summary Indonesia’s GDP is estimated at $US868 billion in 2013, which classifies it as a lower middle income country. GDP growth has averaged almost 6% over the last decade with a population…

Words 5384 - Pages 22

Essay on International Trade and World Customs Organisation

DIPLOMA IN WORLD CUSTOMS AND COMPLIANCE REGULATIONS INTERIM ASSIGNMENT 3 By Mihaela Marin Student no 182616 N/A To Sandra Strong Tutor Date 28/03/2014 WORD COUNT 739 ABSTRACT The purpose of this report is to examine how tariff influences the decisions a clothing company (the Company) operating within the EU makes. Due to fierce competition in the textile industry the Company is sourcing its products outside the EU to keep the costs down and maintain its competitiveness on…

Words 1143 - Pages 5