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Long-run international diversification

Author

Listed:
  • Thomas Conlon

    (Smurfit Graduate Business School, University College Dublin)

  • John Cotter

    (Smurfit Graduate Business School, University College Dublin)

  • Ramazan Gençay

    (Simon Fraser University, Burnaby, British Columbia, Canada)

Abstract

Prevailing wisdom in nance suggests long-run investors have a competitive advantage, since they can ride out short-run uctuations and mispricing, and pursue illiquid investments. This paper investigates if this advantage holds in a portfolio context, examining bene ts of international diversi cation across short- and longrun horizons. Employing a multi-horizon non-parametric lter, increased long-run correlations between international equity markets are detailed, even for synchronized markets. A model replicating the temporal aggregation properties of intermarket correlation is developed, indicating that short-run correlations are downward biased by frictions. Finally, the impact on portfolio allocation is investigated, demonstrating decreased risk reduction bene ts in the long-run.

Suggested Citation

  • Thomas Conlon & John Cotter & Ramazan Gençay, 2015. "Long-run international diversification," Working Papers 201502, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:201502
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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201502.pdf
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    References listed on IDEAS

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    Cited by:

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