We investigate the relative strength of industry versus country effects in the global equity markets during the sample period 1994-2010. In particular, we examine three market segments: (a) the world market, (b) emerging markets, and (c) developed Europe. We employ a factor-based approach to construct portfolios that capture the “pure” effect of each industry or country, and measure the relative strength of the two effects. For the world market, we find that industry and country effects are of comparable strength, although each dominates during different sub-periods. For emerging markets, we find that countries have dominated industries during the entire sample period. In developed Europe, by contrast, we find that industries have dominated countries since the introduction of the euro. We also investigate the size dependency of the relative strength of industry versus country effects. In particular, we find that in the small-cap segment, industry effects become weaker, whereas country effects retain their full strength.
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