COMMON PREDICTABLE COMPONENTS IN REGIONAL STOCK MARKETS

This article employs recently developed multivariate methods to study the predictability of international stock-market returns. We find evid ence of significant common predictable components within the Pacific, the European, and the North American stock markets using region-specif ic instrumental variables. The degree of predictability of these commo n movements, however, varies across regional markets and across subper iods. Results indicate that only North American instrumental variables have the ability to predict excess returns on the stock markets in th e other two regions, but not vice versa.