CORRELATION AMONG INTERNATIONAL EQUITY MARKETS AND INTERNATIONAL DIVERSIFICATION (original) (raw)
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Studies on international portfolio diversification in both developed and emerging countries suggest international diversification of portfolio investment is superior in terms of risk and terms of returns of a domestically formed portfolio. The more recent research has focused on the stability of the correlation structure that underpins the benefits of international portfolio diversification. The issue of whether correlation across markets for investors in Malaysian stock market (Bursa Malaysia) has shifted over time is addressed in this study. This current issue has significance for judging the benefits of international portfolio diversification. If the global stock markets are moving towards higher positive correlation over time, that would mean that the world's equity markets are becoming more integrated. The implication would be that the benefits for international portfolio diversification will be reduced. This study thus provides a time series analysis of a general trend and the shifts of correlation coefficients of internationally diversified portfolios.
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Business School, UNIST for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
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