Long-Term Global Market Correlations
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
Capula Investment Services
K. Geert Rouwenhorst
Yale School of Management - International Center for Finance
October 7, 2004
Yale ICF Working Paper No. 08-04
The correlation structure of the world equity markets varies considerably over the past 150 years. We show that correlations were high during periods of economic and financial integration. We decompose the benefits of international diversification into two parts: a component that measures variation of the average correlation across markets, and a component that measures variation of the investment opportunity set. Globalization is associated with relatively high correlations, and an increase in the investment opportunity set. From this, we infer that periods of globalization have both benefits and drawbacks for international investors.
Number of Pages in PDF File: 46
JEL Classification: G15, F21, N2
Date posted: October 25, 2001 ; Last revised: January 24, 2008
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