The Structure of International Stock Market Returns

The behavior of international stock market returns in terms of rate of return, unconditional volatility, skewness, excess kurtosis, serial dependence and long-memory is examined. A factor analysis approach is employed to identify the underlying dimensions of stock market returns. In our approach, the factors are estimated not from the observed historical returns but from their empirical properties, without imposing any restriction about the time dependence of the observations. To identify clusters of markets and multivariate outliers, factor analysis is then used to generate factor scores. The …ndings suggest the existence of meaningful factors which determine the di¤erences in terms of the dependence structure between developed and emerging market returns. Keywords: Developed and emerging stock markets; Empirical properties of returns, Factor analysis; Serial depedence; Long-memory. JEL classi…cation: C13; G15.