Multinationals and stock return comovement

We find that when a U.S. domestic firm becomes a multinational (MNC), its returns comove more with those of existing multinational firms and less with those of purely domestic firms in the following year. This result is robust to a propensity score matching method and an exogenous shock. Turnover co...

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Bibliographic Details
Published inGlobal finance journal Vol. 52; p. 100714
Main Authors Do, Hung X., Nguyen, Nhut H., Nguyen, Quan M.P.
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.05.2022
Subjects
Clientele
Comovement
Diversification
Multinational
Style investing
Multinational
Clientele
G10
G32
G14
Diversification
Comovement
Style investing
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Summary:We find that when a U.S. domestic firm becomes a multinational (MNC), its returns comove more with those of existing multinational firms and less with those of purely domestic firms in the following year. This result is robust to a propensity score matching method and an exogenous shock. Turnover comovement and changes in mutual funds' holdings of these MNC initiators further indicate that investors prefer multinationals as a style investment. Moreover, MNC initiators with larger foreign sales experience larger shifts in return comovement. Finally, the effect of MNC initiation on return comovement is relatively weaker for 2000–2016 than for 1979–1997. •We investigate multinationals (MNCs) as a style investing.•Stock returns of new MNCs comove more with existing MNC stocks.•Stock returns of new MNCs comove less with returns of purely domestic firms.•Shifts in return comovement are greater for larger foreign sales experience.•Mutual funds adjust their holdings of MNC initiators around the event year.
ISSN:1044-0283
1873-5665
DOI:10.1016/j.gfj.2022.100714