International Portfolio Diversification: A Multivariate Analysis for a Group of Latin American Countries

Lessard, Donald R.

doi:10.2307/2978634

Cited by 121 publications

(85 citation statements)

References 2 publications

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“…*********************************************** Even though the observed increase in raw correlations observed in Panel A of Table IV looks compelling, the increased correlation is not necessarily associated with greater exposure to global systematic risk factors (Lessard (1973) and Griffin and Karolyi (1998)). As explained by Bekaert, Harvey and Ng (2005), the increased correlation between markets could be due to either increased exposure to common risk factors or to an increase in the volatility of the risk factors themselves.…”

Section: Table IV Integration Effectsmentioning

confidence: 71%

The impact of terrorism on global equity market integration

Bilson

Brailsford

Hallett³

et al. 2012

Australian Journal of Management

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In this paper we investigate the short-term contagion and long-term integration effects of terrorist activity on national stock markets. Using the partially-integrated model of Bekaert, Harvey and Ng (2005), we examine whether changes in cross-border relationships surrounding recent terrorist events are caused by changes in exposure to common risk factors and investigate whether these findings are similar across both developed and emerging market securities. Our research concludes that terrorism induces substantial contagion and market integration effects on national equity markets. Specifically, we provide strong evidence that major terrorist attacks induce substantial contagion consequences, particularly for developed nation equity markets. In terms of longer-term integration effects, a strong increase in cross-market correlation is observed from the pre to post-9/11 period. However, we find little evidence of an increase in the risk exposures of national markets to common risk factors, suggesting that this heightened correlation is driven by an increase in global risk factor uncertainty. This finding is consistent with the argument that an increase in the risk-aversion of market participants is associated with terrorist attacks. JEL Codes: F37, G15

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Section: Table IV Integration Effectsmentioning

confidence: 71%

The impact of terrorism on global equity market integration

Bilson

Brailsford

Hallett³

et al. 2012

Australian Journal of Management

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“…In their early work, Grubel (1968), Levy and Sarnat (1970), Solnik (1974) and Lessard (1973Lessard ( , 1976 documented relatively low correlations between U.S. and international equity markets, and argued that an international investor can reduce his risk exposure significantly by diversifying his portfolio internationally. Motivated by this finding, researchers devised empirical studies to explore further the inter-relationships between international equity returns.…”

Section: Early Studiesmentioning

confidence: 99%

International Equity Correlations, Integration and Contagion

Nicklas

Thong

2012

SSRN Journal

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This paper attempts to provide a comprehensive depiction of the dynamics of the correlation structure of international equity returns. In this pursuit, we employ a powerful yet parsimonious dynamic latent factor model with time-varying loadings and stochastic volatility. Such a specification allows us to account for the complex dynamics between international equity returns but is flexible enough to be estimated with a sample of daily data spanning over 20 years across a geographically diverse set of 15 major international markets. We first document that average global and regional correlations have risen steadily over the past two decades. Our main findings are that international equity returns have become increasingly exposed to common sources of variation, and that the entire low-frequency change in equity correlations is due to changing risk exposures rather than changing systematic risk. We also demonstrate significant financial contagion effects during the 1994 Mexican and 1997 Asian crises.

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“…Diversification is a fundamental principle in finance, which aims at minimizing the risk faced by investors (Gaudecker, 2015;Amenc and Martellini, 2011;Goetzmann and Kumar, 2008;De Santis and Gerard, 1997;Meric and Meric, 1989;Klein and Bawa, 1976;Lessard, 1973). This is done by investing in different assets, asset classes and markets that have low, negative or possibly no correlations between their returns, thereby reducing the risk subject exposed to investors.…”

Section: Literature Reviewmentioning

confidence: 99%