Discussion Paper Details

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Title: Firms' Exposures to Geographic Risks

Author(s): Bernard J Dumas, Tymur Gabuniya and Richard C Marston

Publication Date: November 2020

Keyword(s): country factors, expectations-maximization algorithm, factor models, geographic investing, stock return exposures and stock return indexes

Programme Area(s): Financial Economics

Abstract: The distinction between domicile and place of business is becoming more and more relevant as a growing number of firms have activities abroad. In most statistical studies of international stock returns, a firm is included in a country's index if its headquarters are located in that country. This classification scheme ignores the operations of the firm. We propose, instead, to measure the firm's exposures to "geographic zones" according to the place where they conduct business. As a representation of "geographic risks", we synthesize zone factors from all firms in the dataset, be they domestic firms or multinationals. And we show the properties of the exposures to the zone factors.

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Bibliographic Reference

Dumas, B, Gabuniya, T and Marston, R. 2020. 'Firms' Exposures to Geographic Risks'. London, Centre for Economic Policy Research.