International stock returns and market integration: A regional perspective

Robin Brooks and Marco Del Negro ()

No 2002-20, Working Paper from Federal Reserve Bank of Atlanta

Abstract: An empirical regularity in the portfolio diversification literature is the importance of country effects in explaining international return variation. We develop a new decomposition that disaggregates these country effects into region effects and within-region country effects. We find that half the return variation typically attributed to country effects is actually due to region effects, a result robust across developed and emerging markets, with the remaining variation explained by within-region country effects. For the average investor, this means that diversifying across countries within Europe, for example, delivers half the risk reduction possible from diversifying across regions globally.

Keywords: Financial markets; Risk (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-fmk
Date: 2003
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Working Paper: International Stock Returns and Market Integration: A Regional Perspective (2002)
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