46 Pages Posted: 25 Oct 2001 Last revised: 24 Jan 2008
Date Written: October 7, 2004
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.
JEL Classification: G15, F21, N2
Suggested Citation: Suggested Citation
Goetzmann, William N. and Li, Lingfeng and Rouwenhorst, K. Geert, Long-Term Global Market Correlations (October 7, 2004). Yale ICF Working Paper No. 08-04. Available at SSRN: https://ssrn.com/abstract=288421 or http://dx.doi.org/10.2139/ssrn.288421