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To diversify or not to diversify internationally?

Umutlu, Mehmet; Yargı, Seher Gören

Authors

Seher Gören Yargı



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.

Journal Article Type Article
Acceptance Date May 2, 2021
Online Publication Date May 7, 2021
Publication Date 2022-01
Deposit Date Jan 29, 2023
Journal Finance Research Letters
Print ISSN 1544-6123
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 44
Article Number 102110
DOI https://doi.org/10.1016/j.frl.2021.102110