International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility
AbstractWe 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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Bibliographic InfoPaper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp167.
Date of creation: 02 Aug 2006
Date of revision:
Market comovement; International portfolio diversification; Financial market crises; Regime switching.;
Other versions of this item:
- 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.
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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)
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