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

Domestic factors are always impacting the equity returns to the largest possible extend because domestic industry is not always correlated with the foreign industry and there is always various isolations which has been involved in the performance of the domestic industry in respect to the foreign industry because there are various domestic companies which are completely behaving adversely to the global change so it can be said that there may be a inverse correlation of moment of these stocks with the global economy and hence the domestic factors are much more important than the international factors because International factors are common in nature whereas domestic factors are specific in nature.

Industrial membership of a firm is little importance in forecasting the international correlation because it is mostly related to domestic set of stocks rather than the international set of stocks and there is a very high level of vagueness when we are correlating the return of the stocks with the International stock so it will not be providing us with the complete picture of correlation of a company with the International markets.