Diversification With Globally Integrated US Stocks

39 Pages Posted: 3 Aug 2023 Last revised: 2 Apr 2024

See all articles by Thomas Conlon

Thomas Conlon

University College Dublin

John Cotter

University College Dublin

Ioannis Ropotos

University College Dublin

Date Written: August 2, 2023

Abstract

We measure market integration at a firm-level for the US stock market with the rest of the world. The properties of firm-level integration are explored across time and industries and then stocks are sorted into high- and low-integration portfolios. The role of the least globally integrated US stocks in domestic and international portfolio diversification is assessed. We show that these stocks can statistically and economically augment diversification potential, especially after 2000. The same stocks can be combined with the US market index to create a portfolio that performs at least as well as an international index portfolio in terms of risk-adjusted returns and tail risk.

Keywords: Firm-level integration, Integration portfolios, Home-made diversification

JEL Classification: F30, G11, G15

Suggested Citation

Conlon, Thomas and Cotter, John and Ropotos, Ioannis, Diversification With Globally Integrated US Stocks (August 2, 2023). Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 24-1, Available at SSRN: https://ssrn.com/abstract=4529209 or http://dx.doi.org/10.2139/ssrn.4529209

Thomas Conlon

University College Dublin ( email )

Smurfit Graduate Business School
Blackrock
Co. Dublin, n/a
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/drthomasconlon/

John Cotter

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://https://johncotter.org/

Ioannis Ropotos (Contact Author)

University College Dublin

Belfield
Belfield, Dublin 4 4
Ireland

HOME PAGE: http://https://www.smurfitschool.ie/

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