TY - JOUR
T1 - International portfolio diversification
T2 - Currency, industry and country effects revisited
AU - Eiling, E.
AU - Gerard, B.
AU - Hillion, P.
AU - de Roon, F.A.
PY - 2012
Y1 - 2012
N2 - We examine the relative importance of country, industry, world market and currency risk factors for international stock returns. Our approach focuses on testing the mean-variance efficiency of the various factor portfolios. An unconditional analysis does not show significant differences between country, industry and world portfolios, nor any role for currency risk factors. However, when we allow expected returns, volatilities and correlations to vary over time, we find that equity returns are mainly driven by global industry and currency risk factors. We propose a novel test to evaluate the relative benefits of alternative investment strategies and find that including currencies is critical to take full advantage of the diversification benefits afforded by international markets.
AB - We examine the relative importance of country, industry, world market and currency risk factors for international stock returns. Our approach focuses on testing the mean-variance efficiency of the various factor portfolios. An unconditional analysis does not show significant differences between country, industry and world portfolios, nor any role for currency risk factors. However, when we allow expected returns, volatilities and correlations to vary over time, we find that equity returns are mainly driven by global industry and currency risk factors. We propose a novel test to evaluate the relative benefits of alternative investment strategies and find that including currencies is critical to take full advantage of the diversification benefits afforded by international markets.
U2 - 10.1016/j.jimonfin.2012.01.015
DO - 10.1016/j.jimonfin.2012.01.015
M3 - Article
SN - 0261-5606
VL - 31
SP - 1249
EP - 1278
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 5
ER -