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To diversify or not to diversify internationally?

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  • Umutlu, Mehmet
  • Yargı, Seher Gören

Abstract

Using alternative measures of return correlations, we show that neither industry nor country correlations exhibit an ever-increasing trend. Instead, correlations jump during recessions with a tendency to revert in stable periods. This keeps international diversification still important despite the financial integration that might have increased correlations permanently. Moreover, the mean of industry correlations is statistically lower than that of country correlations, suggesting that cross-industry diversification is more efficient. Finally, diversifying through industries of emerging markets rather than those of developed markets reduces mean correlations more. These results are robust to several correlation definitions.

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  • Umutlu, Mehmet & Yargı, Seher Gören, 2022. "To diversify or not to diversify internationally?," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001914
    DOI: 10.1016/j.frl.2021.102110
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    1. Umutlu, Mehmet & Yargı, Seher Gören & Zaremba, Adam, 2023. "Market segmentation and international diversification across country and industry portfolios," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    International portfolio diversification; International portfolio management; Index correlations;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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