INDUSTRIAL-STRUCTURE AND THE COMPARATIVE BEHAVIOR OF INTERNATIONAL STOCK-MARKET INDEXES

Stock Price Indices are compared across countries in an attempt to exp lain why they exhibit such disparate behavior. Three separate explanat ory influences are empirically documented. First, part of the behavior can be attributed to a technical aspect of index construction; some i ndices are more diversified than others. Second, each country's indust rial structure plays a major role in explaining stock price behavior. Third, for the majority of countries, a portion of national equity ind ex behavior can be ascribed to exchange rate behavior. Exchange rates explain a significant portion of common currency denominated national index returns, although the amount explained by exchange rates is less than the amount explained by industrial structure for most countries.