Factors Affecting

International Equity
Returns

Group 3:

Aayush Sandeep Gandhi (291007)

Neel Raj Jain (291047)
Rishabh Jain (034039)
Rudraksh Agarwal (143114)
International Equity
Markets
International equity markets are a critical stage for
global finance. International Equity market is a
place where stocks and shares of different
companies are traded. The equities that are
traded in an equity market are either over the
counter or at stock exchanges. Often called as
stock market or share market, an equity market
allows sellers and buyers to deal in equity or
shares in the same platform. The stock market is
regulated by a financial watchdog. The equity
market is maintained by stock exchanges, and
various stakeholders like brokers, dealers,
clearing corporations etc.
 Market Structure Optional Markets
There are a wide range of plans
for optional markets.
Where the primary equity markets
offer shares for sale directly from ● Dealer Market
the issuing company, the secondary ● Auction Market
equity markets give marketability ● Automated Exchanges
and offer valuation. The secondary
market comprises of merchants who
speak to people in general
purchasers and dealers. International Equity Market
Benchmarks
There are two sorts of requests: ● North America
● Europe
● Market Order
● Asia/ Pacific
● Limit Order
Rim
Cross ‘Cross- listing refers to the listing
of companies’ shares on foreign
Listing stock exchange’

Increased Shareholder Base Liquidity

Financial Gains Visibility

Yankee Stock Global Registered
offerings Share

Companies have listed their stocks on Investors can trade GRS on stock
U.S. exchanges to prime market for
future Yankee stock offerings exchanges around the world in many
currencies.

Privatization Cross-market portability

Growth Trade in multiple markets

North American Free Trade in multiple markets

Trade Agreement Alignment of regulations
 American Depository Receipts
American Depository Receipts (ADRs) offer US investors a means to gain investment exposure to non-US stocks
without the complexities of dealing in foreign stock markets. It is a receipt that represents the number of foreign
shares that are deposited at a U.S. bank, which serves as a transfer agent for the ADRs

ADVANTAGES

ADRs are It is an easier ADR simplifies

denominated in way to invest in tax calculations.
the U.S. dollars foreign
companies
Factors Affecting International Equity
Returns
It is beneficial to explore some of the empirical evidence about which factors
influence equity returns. After all, to construct an efficiently diversified
international portfolio of stocks, one must estimate the expected return and the
variance of returns for each security in the investment set plus the pairwise
correlation structure. It may be easier to accurately estimate these parameters if
a common set of factors affect equity returns.
 Macroeconomic Factors
Macroeconomic variables that influence the overall economic environment in
which the firm issuing the security conducts its business.

Economic factors affect corporate profits, which influence stock prices and equity
returns. Revenues depend on consumer and business spending, which vary with
interest rates, employment and global economic conditions.

Operating and non-operating expenses depend on interest rates, labor wage rates
and commodity prices. Economic growth and low inflation usually mean positive
equity returns, while recessions and high interest rates mean flat or negative
returns.

The factors affecting international equity return is the effect of exchange rate
changes, interest rate differentials, the level of domestic interest rate, and changes
in domestic inflation expectations.
Various Macroeconomic factors are as follows:

❖ Employment Rates
❖ Interest Rate
❖ Oil Prices
❖ Monetary Policy
 Exchange Rates
➢ Exchange rate changes for the most part had a fluctuation of
foreign bond lists than foreign equity records. Exchange rate
is one of the most important factors in this group especially
for the countries that depend to a great extent on
international trading activities.
➢ The existence of a relationship between stock prices and
exchange rate has received considerable attention.
➢ Roll (1992)Industrial Structure
concluded that the industrial structure of
a country was important in explaining a significant
part of the correlation structure of international equity
index returns.
➢ The correlation structure of international security
returns could be better estimated by recognized
country factors rather than industry factors.
➢ Phylatkis and Xia (2006) conducted research on the
role of country on international equity returns.