| Abstract: | We use monthly stock indices for 58 countries to construct pairwise correlations of returns and explain these correlations with risk‐adjusted differences in industrial structure across countries. We find that countries with similar industries exhibit higher stock market comovements. The results are robust to the inclusion of other regressors such as differences in income per capita, stock market capitalizations, measures of institutions, as well as various fixed time, country, and country‐pair effects. Our results are consistent with models where the impact of each industry‐specific shock is proportional to the share of this industry in the overall industrial output of the country. |
