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Long-Term Global Market Correlations

Author

Listed:
  • William N. Goetzmann

    (Yale School of Management)

  • Lingfeng Li

    (Yale University)

  • K. Geert Rouwenhorst

    (Yale School of Management)

Abstract

The correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration. We decompose diversification benefits into two parts: one component due to variation in the average correlation across markets, and a another component due to the variation in the investment opportunity set. From this, we infer that periods of globalization have both benefits and drawbacks for international investors. Globalization expands the opportunity set, but as a result, the benefits from diversification rely increasingly on investment in emerging markets.

Suggested Citation

  • William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2005. "Long-Term Global Market Correlations," The Journal of Business, University of Chicago Press, vol. 78(1), pages 1-38, January.
  • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:1-38
    DOI: 10.1086/426518
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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