Time-varying Integration and International diversification strategies

L. Baele, K. Inghelbrecht

Research output: Contribution to journalArticleScientificpeer-review

51 Citations (Scopus)

Abstract

This paper investigates the impact of globalization and integration on the relative benefits of country and industry diversification. Unlike previous models, our factor model allows asset exposures and volatilities to vary with both structural changes and temporary fluctuations in the economic and financial environment. First, we find that globalization and integration have lead to a gradual convergence of country to industry betas, especially in Europe. Second, the structurally-driven increase in market betas is accompanied by a gradual decrease in country-specific risk. Third, even though the edge has structurally decreased, geographical diversification continues being superior to industry diversification.
Original languageEnglish
Pages (from-to)368-387
JournalJournal of Empirical Finance
Volume16
Issue number3
Publication statusPublished - 2009

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