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Nowhere to Run, Nowhere to Hide - Asset Diversification in a Flat World

Author

Listed:
  • John Cotter

    (School of Business, University College Dublin and UCLA Ziman Center for Real Estate)

  • Stuart Gabriel

    (Anderson School of Management, University of California)

  • Richard Roll

    (California Institute of Technology, Pasadena, CA)

Abstract

We estimate trends in diversification potential for equity, debt, and real estate within and across asset classes and countries. After 2000, we uncover a marked and near ubiquitous decline in diversification potential, which coincides with sharply higher levels of investment risk. This decline is associated with gains in market liquidity, country economic development, and internet diffusion. Diversification potential also waned temporarily during the 1992 ERM and 2009-2010 European sovereign debt crises. The results are robust to controls for macro-financial influences, investor sentiment, and proxies for economic, political, and financial risks. Findings offer a cautionary note regarding asset class and geographic diversification of investment risk in an increasingly flat world.

Suggested Citation

  • John Cotter & Stuart Gabriel & Richard Roll, 2019. "Nowhere to Run, Nowhere to Hide - Asset Diversification in a Flat World," Working Papers 201909, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:201909
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    2. Nikolay Gospodinov, 2017. "Asset Co-movements: Features and Challenges," FRB Atlanta Working Paper 2017-11, Federal Reserve Bank of Atlanta.

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    More about this item

    Keywords

    asset return integration and diversification; equities; fixed income; real estate; economic development;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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