To diversify or not to diversify internationally?

Mehmet Umutlu and Seher Gören Yargı

Finance Research Letters, 2022, vol. 44, issue C

Abstract: Using alternative measures of return correlations, we show that neither industry nor country correlations exhibit an ever-increasing trend. Instead, correlations jump during recessions with a tendency to revert in stable periods. This keeps international diversification still important despite the financial integration that might have increased correlations permanently. Moreover, the mean of industry correlations is statistically lower than that of country correlations, suggesting that cross-industry diversification is more efficient. Finally, diversifying through industries of emerging markets rather than those of developed markets reduces mean correlations more. These results are robust to several correlation definitions.

Keywords: International portfolio diversification; International portfolio management; Index correlations (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001914

DOI: 10.1016/j.frl.2021.102110

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