What Drives Variation in the International Diversification Benefits? A Cross-Country Analysis

Posted: 7 Sep 2019

See all articles by Wan-Jiun Paul Chiou

Wan-Jiun Paul Chiou

Central Michigan University - Department of Finance and Law

Kuntara Pukthuanthong

University of Missouri, Columbia

Date Written: August 31, 2019

Abstract

In this chapter we show that, as the world becomes increasingly integrated, the benefits of global diversification still remain positive and economically significant over time. Both regression analysis and explanatory power tests show that international integration, measured by adjusted from a multifactor model, has more profound impact on the diversification benefits than correlation. Our results support Roll (2013)’s argument that, but not correlation, is an appropriate measure of market integration. We examine the impact of market integration determinants such as default risk, inflation, TED spread, past local equity market return, liquidity, and the relative performance of domestic portfolio on the potential diversification benefits.

Keywords: Diversification Benefits, Investment Constraints, International Portfolio

JEL Classification: G11, G12, G15

Suggested Citation

Chiou, Wan-Jiun Paul and Pukthuanthong, Kuntara, What Drives Variation in the International Diversification Benefits? A Cross-Country Analysis (August 31, 2019). Available at SSRN: https://ssrn.com/abstract=3445774

Wan-Jiun Paul Chiou (Contact Author)

Central Michigan University - Department of Finance and Law ( email )

Mount Pleasant, MI 48859
United States

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

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