The Leading Role of the United States and U.S. Stock Market Components

This paper studies lead-lag relationships among international stock markets. The empirical results show that monthly U.S. stock market returns Granger-cause the returns on multiple developed markets. This effect is most pronounced during bear markets and especially during the recent Global Financial Crisis. An analysis of the driving forces behind the U.S. leadership reveals that the predictive ability of U.S. stocks increases with investor attention. Moreover, the predictive ability of U.S. stocks is concentrated in certain industries, especially Financials and Health Care. These results are consistent with the existence of information frictions among international equity markets.