Local, Regional, and Global Asset Pricing?
Type
working paper
Date Issued
2024-11-27
Author(s)
Abstract
Uncovering the underlying structure of global factor returns and assessing whether assets are priced on a local, regional, or global level are important tasks to understand the dynamics of asset pricing. I am the first to assess the regional extent of factor dynamics or the optimal level of aggregation by comprehensively analyzing factor dependencies in 35 countries. Following a data-driven approach I identify three-factor regions whose borders align with continental and economic lines. With regards to asset pricing, I grant novel insights that the performance of local asset pricing models is largely driven by the local market factor and that optimal models contain local, regional, and global factors, challenging current findings that local models perform best. The findings offer guidance for international asset pricing tests, deepen understanding of factor return dynamics, and provide evidence of the efficacy of global pricing models.
Keywords
Factor Models
Financial Markets
International Asset Pricing
Market Integration
Cluster Analysis JEL Classification: C52
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local_regional_global_v2.pdf
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1.97 MB
Format
Adobe PDF
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