Global equity integration reconsidered: country- and industry-level components

Global equity market integration is a central concept in international finance, yet the relative roles of country-level and industry-level components remain debated. This study addresses the question by decomposing global equity market integration into country-level and industry-level components, distinguishing whether observed integration is broad-based across sectors, concentrated in a few globally exposed industries, or shifts between these two channels across regimes. The country-level component is explained by global factors, while the industry-level component is explained by industry factors constructed to be orthogonal to the global factors over each estimation window. We employ a bias-corrected integration measure based on established R-squared techniques to reduce estimation distortions during crisis periods. Using a comprehensive dataset of 748 country–industry equity portfolios across 68 markets from 1973 to 2023, we track the evolution of integration across decades and market cycles. Our findings reveal that country-level integration dominates on average, whereas industry-level integration becomes more pronounced during several crisis epoosolds. This suggests a regime-dependent shift in the structure of global comovement. Additional structural-break tests reveal significant regime shifts in the country–industry integration gap, confirming that the dominance of country-level integration is not constant over time but varies across global integration regimes. The refined measurement provides new evidence on the relative importance of these two components and contributes to the literature on international diversification. The findings demonstrate the dynamic nature of market integration and provide insights into how potential diversification opportunities vary with market conditions.