|
|
|
|
||||
|
||||
Is the Potential for International Diversification Disappearing? A Dynamic Copula ApproachPeter ChristoffersenUniversity of Toronto - Rotman School of Management; Copenhagen Business School; University of Aarhus - CREATES Vihang R. ErrunzaMcGill University - Desautels Faculty of Management Kris JacobsUniversity of Houston - C.T. Bauer College of Business Hugues LangloisMcGill University - Desautels Faculty of Management May 24, 2012 Review of Financial Studies, 2012, Vol. 25, No. 12, pp. 3711-3751. Abstract: International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections. We find that copula correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower for EMs than for DMs. Tail dependence has also increased but its level is still relatively low for EMs. We propose new measures of dynamic diversification benefits that take into account higher order moments and nonlinear dependence. The benefits from international diversification have reduced over time, drastically so for DMs. EMs still offer significant diversification benefits, especially during large market downturns.
Number of Pages in PDF File: 53 Keywords: Asset allocation, dynamic dependence, dynamic copula, asymmetric dependence JEL Classification: G12 Accepted Paper SeriesDate posted: May 24, 2012 ; Last revised: January 20, 2013Suggested CitationContact Information
|
|
||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo7 in 0.406 seconds
