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On the robustness of international portfolio diversification benefits to regime-switching volatility

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Author Info
Thomas J.Flavin () (Economics, National University of Ireland, Maynooth)
Ekaterini Panopoulou (Department of Statistics and Insurance Science, University of Piraeus, Greece)

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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. Generally, market linkages are stable with little evidence of increased market interdependence in turbulent periods. Furthermore, risk reduction is consistently delivered for the US investor who holds foreign equity.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1801007.pdf.

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Date of creation: 2007
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Handle: RePEc:may:mayecw:n1801007.pdf

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Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.may.ie/academic/economics/
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Related research
Keywords: Market comovement Shift contagion Financial market crises International portfolio diversification Regime switching

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Find related papers by JEL classification:
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models

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  7. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, 09. [Downloadable!] (restricted)
  8. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Gravelle, Toni & Kichian, Maral & Morley, James, 2006. "Detecting shift-contagion in currency and bond markets," Journal of International Economics, Elsevier, vol. 68(2), pages 409-423, March. [Downloadable!] (restricted)
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  10. Grubel, Herbert G & Fadner, Kenneth, 1971. "The Interdependence of International Equity Markets," Journal of Finance, American Finance Association, vol. 26(1), pages 89-94, March. [Downloadable!] (restricted)
  11. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September. [Downloadable!] (restricted)
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Cited by:
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  1. Marie Brière & Ariane Chapelle & Ariane Szafarz, 2008. "No contagion,only globalization and flight to quality," Working Papers CEB 08-018.RS, Université Libre de Bruxelles, Solvay Business School, Centre Emile Bernheim (CEB). [Downloadable!]
  2. Thomas J. Flavin and Ekaterini Panopoulou, 2007. "Detecting Shift and Pure Contagion in East Asian Equity Markets: A Unified Approach," The Institute for International Integration Studies Discussion Paper Series iiisdp236, IIIS. [Downloadable!]
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