Cointegration of Asian Markets with US Markets

Aman Srivastava
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Aman Srivastava: Aman Srivastava is Senior Lecturer, Jaipuria Institute of Management, A/32A, Sector-62, Noida. E-mail: asrivastava@jimnoida.ac.in or amansri@hotmail.com

Global Business Review, 2007, vol. 8, issue 2, 251-265

Abstract: International diversification of portfolios has always been an area of great concern for international fund managers and researchers. There is considerable academic research that documents the benefits of international diversification. There is a large body of financial literature, which studies the existence of inter-linkages among international capital markets since such linkages have serious implications for portfolio diversification as well as macroeconomic policies of the countries concerned. Investors who buy shares in foreign as well as domestic companies seek to reduce market risk and reap rewards through global diversification. Such diversification pays so long as various national markets are not perfectly correlated. There are studies marking the beginning of an extensive literature in financial economics on international diversification. Over the last decade, it is found that the international diversification benefits to global investing are not constant, and due to process of globalization and global linkage among the global markets, they are diminishing compared to the rest of capital market history. The increasing correlation among the developed and emerging markets has restricted the scope for international diversification over last few years. This article attempts to examine the integration structure of the major world equity markets in the era of globalization. The study suggests that integration vary considerably through time and are highest during last few years. The analysis suggests that the periods of globalization have both benefits and drawbacks for international investors. They expand the opportunity set, but diversification relies increasingly on investment in emerging markets.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:8:y:2007:i:2:p:251-265

DOI: 10.1177/097215090700800205

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