12:00pm
Academic Office Building(SBE) 101
This study deals with the cyclical fluctuations of average stock return cross-correlations (or comovement) in 36 countries during the period 1980-2003. Consistent with prior US evidence we find that, in general, comovement is negatively related to the level of economic activity in a country at a given time, and that this relation cannot be explained by firm fundamentals (specifically firm exit rates). Additionally, we find wide cross-sectional variation in the strength of association between comovement and level of economic activity. We find this relation to be stronger in countries where production of financial information is highly volatile. This relation cannot be explained by country characteristics such as country wealth, protection of investor rights, accounting information quality, and degree of financial development. We interpret these results as evidence that intertemporal changes in information production induce changes in comovement in asset returns.