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Degrees Of Integration In International Portfolio Diversification: Effective Systemic Risk

Author

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  • El. Thalassinos
  • Th. Kiriazidis

Abstract

This paper focuses on measuring the degrees of market integration (or segmentation) providing a tool for country selection in international portfolio diversification. It develops methodology measuring effective systemic risk as a proxy of market integration (or segmentation) and therefore allows for appropriate country selection in the better-performing stock markets of the world. The empirical evidence is used to clarify the conclusions about internationally integrated versus segmented markets. Some markets appear more integrated than one might have expected based on information of investment restrictions. Other markets appear segmented despite the fact that foreign investors have relatively free access to their capital markets. This is because these markets were less responsible to the world trend than others. Thus, still international diversification allows investors to reduce the risk and increase the expected return, shifting the efficient frontier to the left.

Suggested Citation

  • El. Thalassinos & Th. Kiriazidis, 2003. "Degrees Of Integration In International Portfolio Diversification: Effective Systemic Risk," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 119-130, January -.
  • Handle: RePEc:ers:journl:v:vi:y:2003:i:1-2:p:119-130
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    File URL: http://www.ersj.eu/repec/ers/papers/03_12_p8.pdf
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    References listed on IDEAS

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    1. Gikas A. Hardouvelis & Dimitrios Malliaropulos & Richard Priestley, 2006. "EMU and European Stock Market Integration," The Journal of Business, University of Chicago Press, vol. 79(1), pages 365-392, January.
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    7. Stulz, Rene M & Wasserfallen, Walter, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1019-1057.
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    More about this item

    Keywords

    International portfolios; diversification; market integration; Segmentation; systemic risk; capital asset pricing model.;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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