Question

Why do you think the empirical studies about factors affecting equity returns basically showed that domestic factors were more important than international factors, and, secondly, that industrial membership of a firm was of little importance in forecasting the international correlation structure of a set of international stocks?

Answer 1

Factors affecting Equity returns showed that domestic factors are more important than the international factors because domestic factors are reflecting the country specific factors where as International factors are applicable to all the countries so domestic factors will always be having a higher influence on the overall performance of the equity market because domestic performance will be sometimes isolated to that of the international markets because some events are just domestically driven events and these are not International event so domestic factors will always be prioritised when stock returns will be reflected where as International factors will only with determining the overall global macro Trends so it can be said that domestic stock returns will be different from that of global returns because there are isolation of various individual market from the global markets as we can see that when the global economy did not perform that exceptionally well, Chinese economy performed exceptionally extraordinary between 2007 and 2014 whereas other global economy poorly performed and when the global economy outperformed, the Chinese economy under performed after 2015 so it is all domestic league driven prioritised stock returns.

Industrial membership of a firm was of little importance in forecasting the international correlation because it is not just about the membership but the majority of the business are established in the domestic territory so it is all about the major influence which will be undertaken by the domestic factors rather than the international factor so International membership will not be having aa higher importance in forecasting of the international correlation