Are Strategies for International Diversification by Country, Industry and Region Equivalent?

Rachid Ghilal, Ahmed Marhfor, M'Zali Bouchra and Jean Jacques Lilti
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Rachid Ghilal: UQAR - Université du Québec à Rimouski
Ahmed Marhfor: UQAT - Université du Québec en Abitibi-Témiscamingue
M'Zali Bouchra: UQAM - Université du Québec à Montréal = University of Québec in Montréal
Jean Jacques Lilti: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this study, we examine whether international portfolio diversification still matters despite an increase in the cross-country correlations of assets returns. More specifically, we explain why an increase in global return correlations does not necessarily imply a reduction in the benefits of international portfolio diversification. We also propose to compare empirically two traditional strategies of international diversification (by country and industry) in addition to a new strategy (by region) using two different methodological approaches, namely the mean variance spanning and multivariate cointegration analysis. Over the full sample period (1994- 2008), our results suggest that the three strategies of international diversification remain effective despite the secular increase in the cross-country return correlations. When we divide the sample into two different sub-periods (1994-2000 and 2000-2008), the findings indicate that the strategy based on regional diversification proved to be a new competing strategy during the second period in comparison to the other two traditional strategies.

Date: 2021
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Published in ACRN Journal of Finance and Risk Perspectives, 2021, 10 (1), pp.204-221. ⟨10.35944/jofrp.2021.10.1.011⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03885614

DOI: 10.35944/jofrp.2021.10.1.011

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