Research Center

Investor Education

The Relative Importance of Country and Sector Factors in Stock Returns

January 2016

Does globalization mean that the performance of a company is related to that of its sector more than its country? We measure the contributions of sector and country factors to the returns of the constituents of the MSCI World Index. We find that over the past 25 years, companies in developed markets have actually seen a stronger relationship with their home country than their sector. However, this domestic dominance does not hold for all countries and sectors, with energy and information technology being notable exceptions.

Value, Size and Momentum on Equity Indices – A Likely Example of Selection Bias

January 2015

Value, size and momentum have a long history as stock price predictors, and similar indicators have been applied to stock indices in order to predict the performance of one national index against another. Published back tests of trading systems based on these ideas have shown impressive performance, but in this paper we find that this performance does not continue past the publication dates.

The Global Monkey
April 2015

Randomly selected equally weighted portfolios have outperformed market-capitalization weighted portfolios globally and by region over the last fifteen years. These results and structural features of market-capitalisation benchmarks call the supposed efficiency of these benchmarks into question.

The Limits of Complexity in Finance
March 2015

It can be all too tempting to continue to add parameters to a model, but is a complex model better than a simpler one? We discuss this issue using a few examples to add colour to the conversation.

Hidden Costs in Index Tracking
January 2014 (revised July 2014)

Buying an Index Tracker is seen as a cheap and easy way to get exposure to stock markets. We estimate the real cost to investors to be at least 20 basis points per year, which could be saved by an active manager following a less crowded strategy even at a much higher turnover.

Global Dispersion and Volatility
November 2014

The past few years have seen a very marked drop in stock market volatility from the elevated levels seen during and in the aftermath of the 2007 financial crisis. Given the scale of the drop, it is instructive to put recent experience into a longer historical context. This context is useful for determining what, if any, investment implications follow from the recent fall and for understanding the pitfalls of relying too heavily on recent market behavior in making investment decisions.