Abstract
The paper analyzes the question whether blue-chip stock indices provide a larger degree of internationalization than mid-cap stock indices. Specific focus lies on internationalization of indices in France, Germany, and the UK. Additionally, we analyze whether the degree of internationalization differs between industries. The dataset covers the CAC40, the DAX30 and the 30 largest firms in the FTSE100 as blue-chip indices and the CAC Next 20 and CAC Mid 60, the MDAX and TecDAX, and the remaining 70 companies in the FTSE100 as mid-cap indices. The comparison of blue-chip and mid-cap indices is based on three indicators of internationalization: percentages of employees based outside the firms’ home country, percentages of foreign sales, and percentages of foreign corporate tax payments. Blue-chip and mid-cap indices exhibit high levels of internationalization. Internationalization is stronger in German and UK blue-chip indices than in these countries’ mid-cap indices, whereas internationalization in French mid-cap and blue-chip indices is similar. Blue-chip and mid-cap firms in the energy/materials/utilities and industrials sectors exhibit similar levels of internationalization, whereas blue-chip firms in the consumer and health sectors exhibit higher levels than corresponding mid-cap firms. The research question and results are of particular importance for retail and institutional investors, because investing in indices typically represents a low cost alternative to individual stock picking. The question whether stock index characteristics, such as market capitalization and industry, influence the degree of international diversification within the index is largely unanswered in the literature. The paper addresses this question.
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See e.g. https://www.msci.com/gics for further information.
Ietto-Gillies (2010) suggests a third dimension: geographic extensity, which reflects the number of countries a firm is active in. We do not use this dimension due to lack of data.
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Acknowledgements
We would like to thank Sergey Barabanov, University of St. Thomas, Minneapolis, Thomas Walker, Concordia University, Montreal, Andreas Höfer, participants of the 2015 Annual Meeting of the Academy of Financial Services, and an anonymous referee for helpful comments and suggestions. We further thank the editor and seminar participants at Bamberg University in Bamberg, Germany and Concordia University in Montreal, Canada. All remaining errors are our own.
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Oehler, A., Wendt, S. & Horn, M. Internationalization of Blue-Chip versus Mid-Cap Stock Indices: an Empirical Analysis for France, Germany, and the UK. Atl Econ J 44, 501–518 (2016). https://doi.org/10.1007/s11293-016-9518-2
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DOI: https://doi.org/10.1007/s11293-016-9518-2
Keywords
- International diversification
- Internationalization
- Blue-chip firms
- Mid-cap firms
- Stock market index
- Retail investors