The Co-Movements of National Stock Markets and Global Portfolio Diversification: 2001-2010

Ilhan Meric (), Benjamin Eichhorn (), Charles McCCALL () and Gulser Meric ()
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Ilhan Meric: College of Business Administration, Rider University, Lawrenceville , NJ 08648"
Benjamin Eichhorn: College of Business Administration, Rider University, Lawrenceville , NJ 08648"
Charles McCCALL: College of Business Administration, Rider University, Lawrenceville , NJ 08648"
Gulser Meric: Rohrer College of Business, Rowan, University, Glassboro, NJ 08028

Review of Economic and Business Studies, 2011, issue 8, 87-98

Abstract: Global portfolio diversification is recommended because of low correlation between national equity markets. However, recent empirical studies find that correlation between national stock markets has been increasing and the benefit of global portfolio diversification has been decreasing. In this paper we test this hypothesis by using the principal components analysis methodology with data from 38 global stock markets for the 2001-2010 period. We divide this 10-year period into two consecutive 5-year periods and we apply principal components analysis to each sub-period separately. We find seven statistically significant principal components for the 2001-2005 period and only three statistically significant principal components for the 2006-2010 period. Our findings indicate that the co-movements of global stock markets have become significantly closer and the global portfolio diversification benefit has decreased considerably during the 2001-2010 period.

Keywords: Co-Movements of Global Stock Markets; Global Portfolio Diversification (search for similar items in EconPapers)
JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:aic:revebs:y:2011:i:8:merici

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