The Rise in Comovement Across National Stock Markets: Market Integration or it Bubble?

FRB of Atlanta Working Paper No. 2002-17

36 Pages Posted: 14 Sep 2002

See all articles by Robin Brooks

Robin Brooks

International Monetary Fund (IMF) - Financial Studies Division

Marco Del Negro

Federal Reserve Bank of New York

Date Written: September 2002

Abstract

A stylized fact in the portfolio diversification literature is that diversifying across countries is more effective than diversifying across industries in terms of risk reduction. But with the rise in comovement across national stock markets since the mid-1990s, this no longer appears to be true. We explore whether this change is driven by global integration and therefore likely to be permanent, or if it is a temporary phenomenon associated with the recent stock market bubble. Our results point to the latter hypothesis. In the aftermath of the bubble, diversifying across countries may therefore still be effective in reducing portfolio risk.

Keywords: diversification, risk, international financial markets, industrial structure

JEL Classification: G11, G15

Suggested Citation

Brooks, Robin and Del Negro, Marco, The Rise in Comovement Across National Stock Markets: Market Integration or it Bubble? (September 2002). FRB of Atlanta Working Paper No. 2002-17. Available at SSRN: https://ssrn.com/abstract=327180 or http://dx.doi.org/10.2139/ssrn.327180

Robin Brooks (Contact Author)

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Marco Del Negro

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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