Is international diversification really beneficial?

You, Leyuan; Daigler, Robert T.

doi:10.1016/j.jbankfin.2009.07.016

Cited by 124 publications

(40 citation statements)

References 40 publications

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“…To this 10 The standard deviation can be informative on the benefit of the diversification in the stock market when it is used as a measure of risk. On this point, see You and Daigler (2010). end, we apply the CD test developed by Pesaran (2004): In order to further support the need of allowing for cross-section dependence, we also compute the long-run cross-section correlation matrix of the residuals of the cointegration equation (5) (see Table 2).…”

Section: Data and Empirical Resultsmentioning

confidence: 99%

Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels

Cerqueti

Costantini

2011

Journal of Banking & Finance

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This paper presents new results on the rational bubbles hypothesis for a panel of 18 OECD countries using the model developed by Campbell (2000). We provide an analysis of international data that exploits increased power deriving from the panel unit root and cointegration methodology, together with the flexibility of allowing explicitly for multiple endogenous structural breaks in the individual series. Differently from the time series methodology, the panel data approach allows for a global analysis of the financial crashes that are related to rational bubbles. We find strong evidence in favor of bubbles phenomena.

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Section: Data and Empirical Resultsmentioning

confidence: 99%

Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels

Cerqueti

Costantini

2011

Journal of Banking & Finance

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“…This characteristic may be crucial for our analysis, because the effect of diversification is reduced when the correlation rises (Choueifaty and Coignard, 2008;You and Daigler, 2010). On top of that, data are far from being normal: the average skewness and kurtosis show that log-returns are leptokurtic, i.e.…”

Section: Bayesian Interpretationmentioning

confidence: 99%

Undiversifying during Crises: Is It a Good Idea?

Giuzio¹,

Paterlini²

2016

Working Paper (Federal Reserve Bank of Cleveland)

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High levels of correlation among fi nancial assets, as well as extreme losses, are typical during crisis periods. In such situations, quantitative asset allocation models are often not robust enough to deal with estimation errors and lead to identifying underperforming investment strategies. It is an open question if in such periods, it would be better to hold diversifi ed portfolios, such as the equally weighted, rather than investing in few selected assets. In this paper, we show that alternative strategies developed by constraining the level of diversifi cation of the portfolio, by means of a regularization constraint on the sparse l q -norm of portfolio weights, can better deal with the trade-off between risk diversifi cation and estimation error. In fact, the proposed approach automatically selects portfolios with a small number of active weights and low risk exposure. Insights on the diversifi cation relationships between the classical minimum variance portfolio, risk budgeting strategies, and diversifi cation-constrained portfolios are also provided. Finally, we show empirically that the diversifi cation-constrainedbased l q -strategy outperforms state-of-art methods during crises, with remarkable out-of-sample performance in risk minimization.

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“…A number of studies in this strand of the literature have focused specifically on international diversification benefits of emerging and frontier markets for investors in advanced markets (e.g. Chiou, 2008;Middleton et al, 2008;Bekaert et al, 2009;You andDaigler, 2010, Berger et al, 2011, among others). On the other hand, fewer studies including Lagoarde-Segot and Lucey (2007), Yu and Hassan (2008), Cheng et al (2010), Mansourfar et al (2010), Arouri and Rault (2012) and Chau et al (2014) have examined the stock markets in the Middle East and North Africa (MENA) region including the GCC countries.…”

Section: Literature Reviewmentioning

confidence: 99%

Regional and global spillovers and diversification opportunities in the GCC equity sectors

Balcılar

Demirer

Hammoudeh

2015

Emerging Markets Review

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This paper examines the international diversification benefits of bloc-wide equity sectors in the oilrich Gulf Cooperation Council (GCC) countries by comparing alternative spillover models that encompass local, regional and global factors. Some GCC-wide equity sectors/subsectors are found to display segmentation from global markets during periods of high and extreme market volatility, and thus can serve as safe havens for international portfolio investors during such periods. The in-and out-of-sample portfolio analyses further suggest that supplementing global portfolios with positions in the GCC markets yields significant international diversification benefits, consistently offering much improved risk-adjusted returns across the alternative spillover models.JEL Classification: C32, G11, G15

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Is international diversification really beneficial?

Cited by 124 publications

References 40 publications

Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels

Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels

Undiversifying during Crises: Is It a Good Idea?

Regional and global spillovers and diversification opportunities in the GCC equity sectors

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