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Long-Term Global Market Correlations

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Author Info

  • William N. Goetzmann

    (Yale School of Management)

  • Lingfeng Li

    (Yale University)

  • K. Geert Rouwenhorst

    (Yale School of Management)

Abstract

The correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration. We decompose diversification benefits into two parts: one component due to variation in the average correlation across markets, and a another component due to the variation in the investment opportunity set. From this, we infer that periods of globalization have both benefits and drawbacks for international investors. Globalization expands the opportunity set, but as a result, the benefits from diversification rely increasingly on investment in emerging markets.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 1 (January)
Pages: 1-38

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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:1-38

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