Which stocks are integrated?

We study the integration of individual US stocks with international equity markets in the period 1974 to 2015. We calculate yearly integration estimates for a firm by regressing its weekly stock returns on a set of principal... [ view full abstract ]

We study the integration of individual US stocks with international equity markets in the period 1974 to 2015. We calculate yearly integration estimates for a firm by regressing its weekly stock returns on a set of principal components we construct using major non-US equity index returns. We find a positive and significant time trend in the average integration level over our sample period. We hypothesise that integration may vary across size and industry portfolios due to the economic fundamentals of firms and the impact of financial market trading. We find that integration levels are strongly positively related to firm size. Small stocks have low levels of integration throughout the sample period. We find positive and significant time trends in integration only for medium- and large-sized stocks. The increase in integration occurs across almost all of the 30 industries we examine. Financial, mining, oil, and steel stocks are particularly highly integrated in the later years of our sample. We also show that certain stocks are consistently ranked among the most integrated in the US market. Our findings have important implications for investors developing diversification strategies.