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Abstract
This paper presents the results of empirical tests on a necessary condition for the diversification service hypothesis: market recognition of the multinationality of a firm and the existence of international factors. Employing both a two- factor international market model and residual analyses, this study examines whether the US stock market considers the multinationality of a firm and inter- national events which are expected to affect the price of MNCs' stock. The residual analysis is conducted over a period which includes both fixed and floating exchange rates. Results from both analyses support the hypothesis that the US stock market does recognize the multinationality of a firm.
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