CROSS COUNTRY INDUSTRY BETAS

Abstract We study the differences in the industrial composition between two stock market indices, the Italian FTSE MIB and the Chinese Shanghai Composite Stock Exchange. We argue that differences in the set of industry weights, measured through market capitalization, on different stock markets carry valuable information required for adjusting industry betas in an emerging market context. On the basis of 256 weekly observations of 1,020 companies belonging to 10 industrial sectors on the Italian and Chinese stock markets, we test the hypotheses that statistically significant cross-country differences in industry betas and industry weights exist and that cross-country differences in industry betas are linearly related to cross-country differences in industry weights. The empirical evidence gathered confirms the existence of cross-country structural differences in industry betas and industry weights, but confutes the hypothesis of a linear relationship between the two.