The purpose of this paper is to examine the effects of exchange rate and global industry shocks on the relative performance of global industries.
In addition to SUR approach, we also use GARCH approach to control for heteroskedasticity.
Using industry data from Japan and the USA, the authors find that although both exchange rate and global industry shocks are statistically significant in explaining the performance of these industries relative to their domestic markets, economically the global industry shock plays the major role in determining this performance.
The authors' findings are only based on two countries, the USA and Japan, so future researchers can use the authors' empirical models to test if their results hold using data from other countries.
Investors should focus more on the performance of global industries instead of exchange rate changes when creating their portfolios.
Our empirical results may explain the poor performance of the regression models in Griffin and Stulz ten years ago where they fail to control for the global industry shock.
Tai, C. and Iqbal, Z. (2011), "How important is global industry shock in explaining the relative performance of global industries?", Managerial Finance, Vol. 37 No. 5, pp. 474-481. https://doi.org/10.1108/03074351111126951Download as .RIS
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