Nowhere to Run, Nowhere to Hide: Asset Diversification in a Flat World
70 Pages Posted: 9 May 2018
Date Written: April 24, 2018
We estimate trends in diversification for equity, debt, and real estate within and across countries. After 2000, we uncover a marked and near ubiquitous decline in diversification, which coincides with sharply higher levels of investment risk. This decline is associated with country economic development and internet diffusion. Diversification also waned temporarily during the 1992 ERM and 2009-2010 European sovereign debt crises. The results are robust to controls for macro- financial and market liquidity influences and proxies for economic, political, and financial risks; they offer a cautionary note regarding asset class and geographic diversification of investment risk in an increasingly flat world.
Keywords: asset return integration and diversification, equities, fixed income, real estate, economic development
JEL Classification: G01, G10, G11, G12, G14, G15
Suggested Citation: Suggested Citation