International portfolio diversification: A study of linkages among the U.S., European and Japanese equity markets

Changes in the international comovement of stock returns and asymmetric macroeconomic shocks

“…One factor could be the physical distance between financial markets that might have an effect on the international comovement of stock returns (Griffin and Karolyi, 1998;Portes and Rey, 2005). Another factor could be the intra-European harmonization of macroeconomic and fiscal policies brought about by the establishment of the European Economic Community, the European Union, and the Euro Area (Rezayat and Yavas, 2006).…”

The Contribution of African Capital Markets in the Diversification of European Investment Portfolios

“…Flavin and Panopoulou (2009) argue that diversification in the international context has long been advocated as an effective way to achieve a higher adjusted return on the investment risk in the domestic market, that is, facilitates risk sharing. According Rezayat and Yavas (2006) examined short-term co-movements between the five major stock markets (USA, UK, France, Germany and Japan) to assess the benefits of International Portfolio Diversification (IPD) and concluded that despite there is still room for diversification, but the benefits are minimal for American and European investors who would like to invest exclusively in these two major economic blocs (Europe and America). The study of MacDowell (2017) concluded IPD can provide gains and volatility reducing benefits.…”

Equity Returns and Volatilities Before and After the 2007-08 Financial Crisis

“…Much of the earlier research in international stock markets concentrated exclusively on spillover of the co-movement between returns (Bekaert et al, 2009;Kim and Langrin 1996;Rezayat & Yavas 2006;Yavas & Rezayat, 2008). These studies found low but increasing correlations across some country equity markets providing attractive diversifi cation opportunities.…”

“…These studies make it clear that while real economic conditions and equity market performances are linked, the performance of equity markets also vary based on international factors, so that market performance is not perfectly correlated across countries . They also indicate that the markets become more closely correlated after unexpected events or shocks (Rezayat &Yavas, 2006;Gray, 2009). From investors' perspective, a better understanding of how markets move together may result in superior portfolio construction and hedging strategies, while helping policy makers (especially central banks) gain an understanding of the processes and consequences of such spillovers.…”