Internationalization of Blue-Chip versus Mid-Cap Stock Indices: An Empirical Analysis for France, Germany, and the UK
Atlantic Economic Journal, 2016
Posted: 11 Jul 2016 Last revised: 26 Feb 2017
Date Written: July 9, 2016
Abstract
The paper analyzes the question whether blue-chip stock indices provide a larger degree of internationalization than mid-cap stock indices. The specific focus lies on internationalization of blue-chip versus mid-cap stock indices in France, Germany, and the UK.
Methodology/Approach: The dataset covers the French CAC40, the German DAX30 and the 30 largest firms in the FTSE100 as blue-chip indices and the French CAC Next 20 and CAC Mid 60, the German 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.
Findings: The results show that, overall, both blue-chip and mid-cap stock indices are highly internationalized. Blue-chip index constituents’ degree of internationalization, however, is higher than internationalization of mid-cap indices in particular in Germany and in the UK. The results for France do not exhibit statistically significant differences between blue-chip and mid-cap indices with respect to internationalization.
Practical Implications: The research question and the results are of particular importance for retail investors and institutional investors alike, because investing in an index typically represents a low transaction cost alternative to individual stock picking.
Originality/Value: The question whether stock index characteristics influence the degree of international diversification within this index is largely unanswered in the literature. The paper addresses this gap in the literature.
Keywords: International Diversification, Internationalization, Blue-Chip Firms, Mid-Cap Firms, Stock Market Index, Retail Investors
JEL Classification: G11, G02, F65
Suggested Citation: Suggested Citation