Equity Market Comovement and Contagion: A Sectoral Perspective

This paper takes an asset pricing perspective to investigate the equity market comovement and contagion at the sector level during the period 1990‐2004 across the regions of Europe, Asia, and Latin America. It examines whether unexpected shocks from a particular market, or group of markets, are propagated to the sectors in other countries. The results confirm the sector heterogeneity of contagion. This implies that there are sectors that can still provide a channel for achieving the benefits of international diversification during crises despite the prevailing contagion at the market level. In addition, the results lend support to the importance of financial links in the propagation of contagion.