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On the robustness of international portfolio diversification benefits to regime-switching volatility

Thomas Flavin () and Ekaterini Panopoulou ()

Economics, Finance and Accounting Department Working Paper Series from Department of Economics, Finance and Accounting, National University of Ireland - Maynooth

Abstract: We examine if the benefits of international portfolio diversification are robust to time-varying asset return volatility. Since diversified portfolios are subject to common cross-country shocks, we focus on the transmission mechanism of such shocks in the presence of regime-switching volatility. Generally, market linkages are stable with little evidence of increased market interdependence in turbulent periods. Furthermore, risk reduction is consistently delivered for the US investor who holds foreign equity.

Keywords: Market comovement; Shift contagion; Financial market crises; International portfolio diversification; Regime switching (search for similar items in EconPapers)
JEL-codes: F42 G15 C32 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-rmg
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Journal Article: On the robustness of international portfolio diversification benefits to regime-switching volatility (2009) Downloads
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