Global Diversification with Local Stocks: A Road Less Traveled
60 Pages
Posted: 14 Jul 2017
Georgia Institute of Technology - Finance Area
Georgia Institute of Technology - Scheller College of Business
Georgia Institute of Technology
Georgia Institute of Technology - Scheller College of Business
Date Written: July 8, 2017
Abstract
Utilizing approximately 51,000 sample firms from developed markets over 1995-2014, we document a stark heterogeneity in global integration at the firm-level and study its implications for diversification. Specifically, the adjusted R-square, our integration measure, is widely distributed across firms, within and across sample markets. A firm’s integration is significantly affected by its style, country, and industry attributes. Systematically identifying and holding “local stocks” that are minimally driven by the common global factors, investors can significantly benefit from diversification within developed markets. Thus, the diversification gains solely inferred from the market indices much understate the potential benefits that world markets can provide.
Keywords: Firm-level global integration; International diversification; Local stocks
JEL Classification: F36, G11, G15
Suggested Citation:
Suggested Citation
Eun, Cheol S. and Kim, Soohun and Wei, Fengrong and Zhang, Teng, Global Diversification with Local Stocks: A Road Less Traveled (July 8, 2017). Available at SSRN: https://ssrn.com/abstract=2997231
