Another look at the role of the industrial structure of markets for international diversification strategies
AbstractThis paper re-examines the extent to which gains to international diversification are due to differences in industrial structure across countries. Recent papers by Roll (1992) and Heston and Rouwenhorst (1994) investigate this issue and find conflicting evidence. Using a new database, the Dow Jones World-Stock Index, with coverage in 25 countries and over 66 industry classifications, we find that while country effects dominate industry effects, the variance of industry effects comprises a substantial proportion of the total variation in international index returns. Global investors that ignore the industrial mix of the portfolios in which they invest can limit their potential diversification benefits in an economically important way.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 50 (1998)
Issue (Month): 3 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505576
Other versions of this item:
- John M. Griffin & G. Andrew Karolyi, . "Another Look at the Role of the Industrial Structure of Markets for International Diversification Strategies," Research in Financial Economics 9608, Ohio State University.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 45-60.
- Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
- Lessard, Donald R, 1974. "World, National, and Industry Factors in Equity Returns," Journal of Finance, American Finance Association, vol. 29(2), pages 379-91, May.
- Bekaert, Geert & Harvey, Campbell R, 1995.
" Time-Varying World Market Integration,"
Journal of Finance,
American Finance Association, vol. 50(2), pages 403-44, June.
- Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
- Chan, K. C. & Karolyi, G. Andrew & Stulz, ReneM., 1992.
"Global financial markets and the risk premium on U.S. equity,"
Journal of Financial Economics,
Elsevier, vol. 32(2), pages 137-167, October.
- K.C. Chan & G. Andrew Karolyi & Rene M. Stulz, 1992. "Global Financial Markets and the Risk Premium on U.S. Equity," NBER Working Papers 4074, National Bureau of Economic Research, Inc.
- Roll, Richard, 1992. " Industrial Structure and the Comparative Behavior of International Stock Market Indices," Journal of Finance, American Finance Association, vol. 47(1), pages 3-41, March.
- King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994.
"Volatility and Links between National Stock Markets,"
Econometric Society, vol. 62(4), pages 901-33, July.
- Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
- Clarke, Richard N, 1989. "SICs as Delineators of Economic Markets," The Journal of Business, University of Chicago Press, vol. 62(1), pages 17-31, January.
- Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-57, March.
- Bae, Kee-Hong & Andrew Karolyi, G., 1994.
"Good news, bad news and international spillovers of stock return volatility between Japan and the U.S,"
Pacific-Basin Finance Journal,
Elsevier, vol. 2(4), pages 405-438, December.
- Bae, Kee-Hong & Andrew Karolyi, G., 1995. "Good news, band news and international spilovers of stock return volatility between Japan and the U.S," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 144-144, May.
- Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-79, June.
- Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
- G. Andrew Karolyi & Rene Stulz, . "Why do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements using ADRS," Research in Financial Economics 9501, Ohio State University.
- Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
- Kennedy, Peter, 1986. "Interpreting Dummy Variables," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 174-75, February.
- Jun-Koo Kang & Rene M. Stulz, 1995.
"Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan,"
NBER Working Papers
5166, National Bureau of Economic Research, Inc.
- Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
- Guenther, David A. & Rosman, Andrew J., 1994. "Differences between COMPUSTAT and CRSP SIC codes and related effects on research," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 115-128, July.
- Rene M. Stulz, 1994. "International Portfolio Choice and Asset Pricing: An Integrative Survey," NBER Working Papers 4645, National Bureau of Economic Research, Inc.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.