To Diversify or Not to Diversify Internationally?

16 Pages Posted: 23 May 2021

See all articles by Mehmet Umutlu

Mehmet Umutlu

Edinburgh Napier University, The Business School, Accounting and Finance Subject Group

Seher Gören Yargi

Yasar University

Date Written: August 30, 2020

Abstract

Using alternative measures of return correlations, we show that neither industry nor country correlations exhibit an ever-increasing trend. Instead, correlations jump during recessions with a tendency to revert in stable periods. This keeps international diversification still important despite the financial integration that might have increased correlations permanently. Moreover, the mean of industry correlations is statistically lower than that of country correlations, suggesting that cross-industry diversification is more efficient. Finally, diversifying through industries of emerging markets rather than those of developed markets reduces mean correlations more. These results are robust to several correlation definitions.

Keywords: International diversification, International portfolio management, Index correlations

JEL Classification: G11, G12

Suggested Citation

Umutlu, Mehmet and Gören Yargı, Seher, To Diversify or Not to Diversify Internationally? (August 30, 2020). Forthcoming, Finance Research Letters, https://doi.org/10.1016/j.frl.2021.102110, Available at SSRN: https://ssrn.com/abstract=3849251

Mehmet Umutlu

Edinburgh Napier University, The Business School, Accounting and Finance Subject Group ( email )

Craiglockhart Campus
Edinburgh, Scotland EH11 4BN
United Kingdom

Seher Gören Yargı (Contact Author)

Yasar University ( email )

DYO Kampusu 364 Sk No:5
Bornova
Izmir, 35500
Turkey

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