| Summary: | This study examines the role of common, country and industry effects in
international diversification potential in ASEAN stock markets. This study follows
Heston & Rouwenhorst (1994) decomposition approach in extracting these effects
from stock returns. Given the increased integration of financial markets and previous
mixed findings, ongoing debates of country versus industry diversifications are still
remain unsolved. The first stage analysis will scrutinize whether country or industry
diversification is more fruitful and the evolutions of common, country and industry
effects throughout the sample period. The second stage analysis of this study focuses
on the determinants of country and industry effects, where it could provide better
understanding towards the driving forces behind the magnitude of country and
industry effects. Specifically, panel regressions are employed in the second stage
analysis. The sample of this study comprises 4043 individual firms across ASEAN
countries classified using the industry classification benchmark (ICB) over the period
1990-2010.
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