Comovement in Anomalies between the Australian and US Equity Markets*

• Author: Philip Gharghori,Angel Zhong,Mardy Chiah
• DOI: http://doi.org/10.1111/irfi.12249
• Published date: 01 December 2020
• Date: 01 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 confirms

the continued existence of these anomalies in Australia and finds that these

anomalies do not co-move with their US counterparts. Given the conflicting

findings 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 diversification 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 firm-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-specificfirm-level characteristics are more

important than their global counterparts. For instance, Griffin (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. 1005–1017

DOI: 10.1111/irfi.12249