Journal of Financial and Quantitative Analysis

Research Article

Have World, Country, and Industry Risks Changed over Time? An Investigation of the Volatility of Developed Stock Markets

Miguel A. Ferreiraa1 and Paulo M. Gamaa2

a1, ISCTE Business School-Lisbon, CEMAF/ISCTE, Complexo INDEG/ISCTE, Av. Prof. Anibal Bettencourt, 1600–189 Lisboa, Portugal

a2, ISCTE Business School-Lisbon, University of Coimbra, Faculdade de Economia, Avenida Dias da Silva, 165, 3004–512 Coimbra, Portugal.


This paper uses a volatility decomposition method to study the time-series behavior of equity volatility at the world, country, and local industry levels. Between 1974 and 2001, there is no noticeable long-term trend in any of the volatility measures. Then in the 1990s there is a sharp increase in local industry volatility compared to market and country volatility. Thus, correlations among local industries have declined. More assets are needed to achieve a given level of diversification, and there is more of a penalty for not being well diversified by industry. Local industry volatility leads the other volatility measures.