International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility

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International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility

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Thomas Flavin
Ekaterini Panopoulou

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Abstract

We examine if the benefits of international portfolio diversification are robust to time-varying asset return volatility. Since diversified portfolios are subject to common cross-country shocks, we focus on the transmission mechanism of such shocks in the presence of regime-switching volatility. We find little evidence of increased market interdependence in turbulent periods. Furthermore, for the vast majority of time, we show that risk reduction is delivered for the US investor who holds foreign equity.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp167.

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Date of creation: 02 Aug 2006
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Handle: RePEc:iis:dispap:iiisdp167

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Paper
- Thomas Flavin & Ekaterini Panopoulou, 2007. "International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility," Money Macro and Finance (MMF) Research Group Conference 2006 150, Money Macro and Finance Research Group. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-08-12 (All new papers)
NEP-ETS-2006-08-12 (Econometric Time Series)
NEP-FIN-2006-08-12 (Finance)
NEP-FMK-2006-08-12 (Financial Markets)
NEP-IFN-2006-08-12 (International Finance)
NEP-RMG-2006-08-12 (Risk Management)

References listed on IDEAS
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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Full references

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Thomas Flavin & Ekaterini Panopoulou, 2006. "Shift versus traditional contagion in Asian markets," The Institute for International Integration Studies Discussion Paper Series iiisdp176, IIIS. [Downloadable!]

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