Comovement in Anomalies between the Australian and US Equity Markets*

AuthorPhilip Gharghori,Angel Zhong,Mardy Chiah
DOIhttp://doi.org/10.1111/irfi.12249
Date01 December 2020
Published date01 December 2020
Comovement in Anomalies between
the Australian and US Equity
Markets*
MARDY CHIAH
,PHILIP GHARGHORI
AND ANGEL ZHONG
§
Swinburne Business School, Swinburne University of Technology, Melbourne,
Australia
Department of Banking and Finance, Monash University, Melbourne, Australia and
§
School of Economics, Finance and Marketing, RMIT University, Melbourne, Australia
ABSTRACT
This study examines the comovement between eight prominent Australian
asset pricing anomalies and their corresponding US counterparts. It conrms
the continued existence of these anomalies in Australia and nds that these
anomalies do not co-move with their US counterparts. Given the conicting
ndings in prior research on the integration or segmentation of the
Australian and US equity markets, this study adds to the body of evidence
supporting segmentation.
JEL Codes: G12; G15
Accepted: 13 November 2018
I. INTRODUCTION
In international equity markets, companiesaroundtheworldhavegradually
adapted to globalization over the last few decades. As such, identifying cross-
country return comovements and understanding the causes of return comovement
and the implication on portfolio risk and diversication have attracted substantial
interest from both researchers and investment practitioners. Early work on
international asset pricing models emphasizes the importance of market-wide,
consumption-based, or currency factor risks (Solnik 1974; Grauer et al. 1976;
Errunza and Losq 1985). Despite the development of international asset pricing
models, most academic research on portfolio choice and asset pricing focuses only
on local factors and local rm-characteristics when examining the determinants of
expected returns on risky assets. For the relatively thin literature that considers
both local and international factors in explaining stock returns, the primary debate
is whether the explanatory power of these characteristics arises locally or globally.
Some studies argue that country-specicrm-level characteristics are more
important than their global counterparts. For instance, Grifn (2002)
* We are grateful to the helpful comments from an anonymous referee.
© 2018 International Review of Finance Ltd. 2018
International Review of Finance, 20:4, 2020: pp. 10051017
DOI: 10.1111/ir.12249

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