Diversification Strikes Again: Evidence from Global Equity Factors

33 Pages Posted: 15 Sep 2017 Last revised: 7 Nov 2017

See all articles by Jay Binstock

Jay Binstock

Research Affiliates, LLC

Engin Kose

affiliation not provided to SSRN

Michele Mazzoleni

Research Affiliates, LLC

Date Written: October 31, 2017

Abstract

The benefits of country diversification are well-established. This article shows that the same benefits extend to equity factors, such as value, size, momentum, investment, and profitability. Specifically, country factor portfolios reflect both common variation, which we define as the global factor, and local variation. On average, a US investor could enjoy a 30% reduction in portfolio volatility by investing globally. We also document three other properties of equity factors. Like major asset classes, diversification benefits may not been uniform across regions, and factor portfolios of different countries tend to be more correlated during bear stock markets. However, unlike asset classes, the correlations of factor portfolios across countries have not been increasing over the last two decades, making global equity factors particularly desirable additions to a portfolio.

Keywords: Equity factors, global factors, diversification, market integration

JEL Classification: G11, G12, G15

Suggested Citation

Binstock, Jay and Kose, Engin and Mazzoleni, Michele, Diversification Strikes Again: Evidence from Global Equity Factors (October 31, 2017). Available at SSRN: https://ssrn.com/abstract=3036423 or http://dx.doi.org/10.2139/ssrn.3036423

Jay Binstock

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.researchaffiliates.com/

Engin Kose

affiliation not provided to SSRN

Michele Mazzoleni (Contact Author)

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://https://www.researchaffiliates.com/en_us/about-us/our-team/michele-mazzoleni.html

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