The role of distance in equity market comovements
thesisposted on 28.03.2022, 19:35 by Vincent Michael McGrath
The benefits of international diversification are well known; however, these benefits rely on low international correlations. This paper examines how distance influences equity market correlations. Prior research has indicated that geographic and cultural distance inhibit comovements. We expand the concept of distance to include political, demographic and governance distance. The results of this paper indicate that distance is significant in equity market comovements. We find that political and demographic distance reduce comovements, and these results are robust to using both return and volatility comovements. We also find that governance distance reduces equity market return correlations; however, these results are not robust to using volatility correlations -- abstract.