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International equity flows, marginal conditional stochastic dominance and diversification

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  • Ephraim Clark
  • Konstantinos Kassimatis

Abstract

The weak empirical evidence linking diversification and international equity flows calls into question the diversification paradigm at the international level and the analytical framework it implies. Using the concept of Marginal Conditional Stochastic Dominance (MCSD) to estimate the diversification opportunities, this paper reexamines the role that diversification opportunities play in the determination of international equity flows. It provides strong evidence that when diversification opportunities are measured in terms of MCSD, they are significant determinants of international equity flows. Capital flows into dominant markets and flees markets that are dominated. These results are robust with respect to a range of conventional control variables documented in the outstanding literature. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Ephraim Clark & Konstantinos Kassimatis, 2013. "International equity flows, marginal conditional stochastic dominance and diversification," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 251-271, February.
    • Handle: RePEc:kap:rqfnac:v:40:y:2013:i:2:p:251-271
    DOI: 10.1007/s11156-012-0277-0
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    3. Denuit, Michel M. & Huang, Rachel J. & Tzeng, Larry Y. & Wang, Christine W., 2014. "Almost marginal conditional stochastic dominance," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 57-66.
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    5. Frank O. Kwabi & Chandra Thapa & Krishna Paudyal & Suman Neupane, 2020. "Suboptimal international equity portfolio diversification and stock market development," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 389-412, January.
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    More about this item

    Keywords

    Equity flows; Diversification; Marginal conditional stochastic dominance; G11; G15;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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