International equity holdings and stock returns correlations: Does diversification matter at all for portfolio choice?
AbstractDo investors completely ignore the basics of portfolio theory? Given their over-exposure on domestic risk, investors should try to hedge this risk by picking foreign assets that have low correlation with their home assets. In the data though, we find a robust positive relationship between bilateral equity holdings and bilateral return correlations. We argue that this finding could be driven by the common impact of "financial integration" on cross-border equity holdings and on cross-market correlations. Indeed, when we instrument current correlation with past correlation to control for endogeneity, we recover asset demand functions that decrease with return correlation.
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.
Bibliographic InfoPaper provided by HAL in its series PSE Working Papers with number halshs-00590777.
Date of creation: Jul 2005
Date of revision:
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00590777
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
international portfolio choice ; international stock return correlations ; financial integration ; endogeneity bias;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Barry Eichengreen & Pipat Luengnaruemitchai, 2006.
"Bond Markets as Conduits for Capital Flows: How Does Asia Compare?,"
NBER Working Papers
12408, National Bureau of Economic Research, Inc.
- Barry Eichengreen & Pipat Luengnaruemitchai, 2008. "Bond Markets as Conduits for Capital Flows: How Does Asia Compare?," NBER Chapters, in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 267-313 National Bureau of Economic Research, Inc.
- Pipat Luengnaruemitchai & Barry J. Eichengreen, 2006. "Bond Markets As Conduits for Capital Flows: How Does Asia Compare?," IMF Working Papers 06/238, International Monetary Fund.
- Philip R. Lane, 2006.
"Global Bond Portfolios and EMU,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(2), May.
- Philip R. Lane, 2006. "Global Bond Portfolios and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp168, IIIS.
- Lane, Philip R., 2005. "Global bond portfolios and EMU," Working Paper Series 0553, European Central Bank.
- Lane, Philip R, 2005. "Global Bond Portfolios and EMU," MPRA Paper 654, University Library of Munich, Germany, revised 15 Feb 2006.
- Okawa, Yohei & van Wincoop, Eric, 2012.
"Gravity in International Finance,"
Journal of International Economics,
Elsevier, vol. 87(2), pages 205-215.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.