Long-Term Global Market Correlations

46 Pages Posted: 25 Oct 2001 Last revised: 24 Jan 2008

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Lingfeng Li

Capula Investment Services

K. Geert Rouwenhorst

Yale School of Management - International Center for Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2004

Abstract

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

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

William N. Goetzmann (Contact Author)

Yale School of Management - International Center for Finance ( email )

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National Bureau of Economic Research (NBER)

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Lingfeng Li

Capula Investment Services ( email )

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Knightsbridge
London, SW7 1DR
United Kingdom
+44(0)7500085962 (Phone)

K. Geert Rouwenhorst

Yale School of Management - International Center for Finance ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6046 (Phone)
203-432-8931 (Fax)

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