Are U.S. growth and value stocks similarly integrated with the world markets? A test across business cycles

Utilizing the bivariate GARCH-in-mean methodology, this study examines the strength of global risk premia using 10 major foreign stock markets with two style-based, large-cap U.S. index funds and S&P500, for the period 1993-2014. We incorporated seven U.S. business cycles. The foreign risk premium was found to be significantly strong for both growth and value stocks, and the S&P500 index, indicating that U.S. integration within global market is strong and persistent over the past 20 years. We report distinct risk characteristics owing to global linkages, for the two style-based U.S. funds over different business cycles. The foreign risk premium for growth stocks is mostly positive and especially high during contractions; in contrast, the value stocks demand more premiums during expansions. The growth and value linkages with foreign countries also vary quite substantially over the business cycles. A possible sign of convergence is the decreasing difference between value and growth foreign risk premiums, post-2001, perhaps indicative of greater domestic and global market integration. Our results support a solid, continuing trend of U.S. integration within global markets, with an influential role of business cycles.