Firm-Level Evidence on International Stock Market Comovement

We explore the link between international stock market comovement and the extent to which firms operate globally. Using stock returns and balance sheet data for companies in 20 countries, we estimate a factor model that decomposes stock returns into global, country- and industry-specific shocks. We find a large and statistically significant link for global shocks. A firm raising its international sales by 10 percent raises the exposure of its stock return to global shocks by two percent. This link has grown stronger over time since the mid-1980s. We find no similarly robust link between international sales and exposure to country-specific shocks.