We address the perennial question of international investment: What matters the most, country or industry selection? Using the superior asset coverage and granularity of the Barra Integrated Model, we are able to decipher contributions from global factors, such as country and global industry returns, as well as country-specific trends. In particular, we find that the significant and sharp increase in the relative importance of industry selection observed at the end of the 90s was closely related to the TMT bubble. Although we do observe a much slower drift of relative importance from country to industry, both remain compatible in the developed markets. In contrast, in the emerging markets, the choice of country is clearly dominant. We also address the importance of using country-specific trends that contribute a significant fraction of the total cross-sectional variance of asset returns.

This session was presented by the Batten Institute at the Darden Graduate Business School in partnership with Emerging Markets Review, Financial Management Association International, the Research Foundation of the Association for Investment Management and Research, and State Street Corporation.