Nowhere Left to Hide? Stock Market Correlation, Regional Diversification, and the Case for Investing in Africa
AbstractInvestors diversify their portfolios to boost returns and manage risk. However, the benefits of diversifying across geographic regions are reduced if markets are highly correlated. This paper examines trends over the past two decades and finds, as expected from global market integration, that regional indices have become increasingly correlated with the S&P 500 index. Sub-Saharan Africa is also part of this trend, but is a notable laggard. For instance, in 2010 the correlation with the S&P500 was 0.86 for markets in Latin America, 0.79 for Asia, and just 0.31 for sub-Saharan markets (excluding South Africa). Additionally, correlations among African markets are generally very low. While there remain barriers to exploiting this trend, Africa’s integration lag may present opportunities for investors seeking regional diversification—and policymakers seeking to attract greater portfolio investment to the continent.
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Bibliographic InfoPaper provided by Center for Global Development in its series Working Papers with number 316.
Length: 20 pages
Date of creation: Mar 2013
Date of revision:
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Web page: http://www.cgdev.org
international financial markets; portfolio choice; emerging markets; Africa; market correlation; stock markets;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The Upside of Down and a Positive-Sum World
by charleskenny in Global Development: Views from the Center on 2014-01-07 17:39:06
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