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Sources of Gains from International Portfolio Diversification

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  • Campa, José Manuel
  • Fernandes, Nuno

Abstract

This Paper looks at the determinants of country- and industry-specific factors in international portfolio returns using a sample of 36 countries and 39 industries over the last three decades. Country factors have remained relatively stable over the sample period while industry factors have significantly increased during the last decade. The importance of industry and country factors is correlated with measures of international economic and financial integration and development. Country factors are smaller for countries integrated in world financial markets and have declined as the degree of financial integration and the number of countries pursuing financial liberalizations has increased. Higher international financial integration within an industry increases the importance of industry factors in explaining returns. Economic integration of production also helps in explaining returns. Countries with a more specialized production activity have higher country factors.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4390.

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Date of creation: May 2004
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Handle: RePEc:cpr:ceprdp:4390

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Keywords: emerging markets; financial integration; portfolio investment;

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References

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Citations

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Cited by:
  1. Chen, Mei-ping & Lee, Chien-Chiang & Hsu, Yi-Chung, 2011. "The impact of American depositary receipts on the Japanese index: Do industry effect and size effect matter?," Economic Modelling, Elsevier, vol. 28(1), pages 526-539.
  2. Küçük, Ugur N., 2009. "Emerging Market Local Currency Bond Market, Too Risky to Invest?," MPRA Paper 21878, University Library of Munich, Germany.
  3. Borgsen, Sina & Glaser, Markus, 2005. "Diversifikationseffekte durch Small und Mid Caps?," Sonderforschungsbereich 504 Publications 05-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  4. Lieven Moor & Piet Sercu, 2010. "Country v sector effects in equity returns and the roles of geographical and firm-size coverage," Small Business Economics, Springer, vol. 35(4), pages 433-448, November.
  5. Ye Bai & Christopher Green, 2011. "Determinants of cross-sectional stock return variations in emerging markets," Empirical Economics, Springer, vol. 41(1), pages 81-102, August.
  6. Eiling, Esther & Gerard, Bruno & Hillion, Pierre & de Roon, Frans A., 2012. "International portfolio diversification: Currency, industry and country effects revisited," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1249-1278.
  7. Baele, Lieven & Inghelbrecht, Koen, 2009. "Time-varying Integration and International diversification strategies," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 368-387, June.
  8. L. Baele & K. Inghelbrecht, 2006. "Structural versus Temporary Drivers of Country and Industry Risk," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/413, Ghent University, Faculty of Economics and Business Administration.
  9. Ferreira, Miguel A. & Miguel, Antonio F., 2011. "The determinants of domestic and foreign bond bias," Journal of Multinational Financial Management, Elsevier, vol. 21(5), pages 279-300.
  10. Guglielmo Maria Caporale & Burcu Erdogan & Vladimir Kuzin, 2009. "Testing for Convergence in Stock Markets: A Non-Linear Factor Approach," CESifo Working Paper Series 2845, CESifo Group Munich.
  11. Barbara Pfeffer, 2008. "Do regional Trade and Specialization drive intra-regional Risk-Sharing?," MAGKS Papers on Economics 200813, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  12. Kucuk, Ugur N., 2009. "Dynamic Sources of Sovereign Bond Market Liquidity," MPRA Paper 19677, University Library of Munich, Germany.
  13. Bai, Ye & Green, Christopher J., 2010. "International diversification strategies: Revisited from the risk perspective," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 236-245, January.
  14. De Moor, Lieven & Sercu, Piet, 2011. "Country versus sector factors in equity returns: The roles of non-unit exposures," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 64-77, January.
  15. Bai, Ye & Green, Christopher J. & Leger, Lawrence, 2012. "Industry and country factors in emerging market returns: Did the Asian crisis make a difference?," Emerging Markets Review, Elsevier, vol. 13(4), pages 559-580.

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