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| Author: | Butler, K.C. Joaquin, D.C. |
| Title: | Are the gains from international portfolio diversification exaggerated? The influence of downside risk in bear markets |
| Journal: | Journal of International Money and Finance
2002 : DEC, VOL. 21:7, p. 981-1011 |
| Index terms: | DIVERSIFICATION INTERNATIONAL BUSINESS PORTFOLIO MANAGEMENT RISK |
| Language: | eng |
| Abstract: | The fundamental rationale for international portfolio diversification is that it expands the opportunities for gains from portfolio diversification beyond those that are available through domestic securities. However, if international stock market correlations are higher than normal in bear markets, then international diversification will fail to yield the promised gains just when they are needed most. The authors evaluate the extent to which observed correlations to monthly returns in bear, calm and bull markets are captured by three popular bivariate distributions: 1) the normal, 2) the restricted GARCH(1,1) of J.P. Morgan's RiskMetrics, and 3) the Student-t with four degrees of freedom. |
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