Description:
This paper aims to investigate what drives international stock return comovements. We adopt a dynamic latent factor model to decompose international stock returns into four components: global, country-specific, industry-specific, and firm-specific components. Initially, we find that the global factor explains approximately thirty percent of the fluctuations in international stock returns. Furthermore, our findings document that the influence of country factor surpasses that of industry factor. Lastly, our results suggest that the relative importance of global, country-specific, and industry-specific effects in explaining variations in international returns can be linked to the degree of firm-level globalization