International portfolio diversification: Currency, industry and country effects revisited

Eiling, Esther; Gérard, Bruno; Hillion, Pierre; Roon, F.A. de

doi:10.1016/j.jimonfin.2012.01.015

Cited by 48 publications

(29 citation statements)

References 54 publications

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“…When the currency risk of the benchmark assets is 24 Only a handful of studies test the diversification benefits from simple FX excess returns (long forward positions), e.g. Glen andJorion (1993), de Roon, Nijman, andWerker (2003), Eiling, Gerard, Hillion, and de Roon (2009), and most recently Campbell, de Medeiros, and Viceira (2010).…”

Section: B Mean-variance Efficiency Testsmentioning

confidence: 99%

International Diversification Benefits with Foreign Exchange Investment Styles*

2013

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp11028.pdf Abstract This paper provides a comprehensive analysis of portfolio choice with popular foreign exchange (FX) investment styles such as carry trades and strategies commonly known as FX momentum, and FX value. We investigate if diversification benefits can be achieved by style investing in FX markets relative to a benchmark allocation consisting of U.S. bonds, U.S. stocks, and international stocks. Overall, our results suggest that there are significant improvements in international portfolio diversification due to style-based investing in FX markets (both in the statistical, and most importantly, in the economic sense). These results prevail for the most important investment styles after accounting for transaction costs due to re-balancing of currency positions, and also hold in out-of-sample tests. Moreover, these gains do not only apply to a mean-variance investor but we also show that international portfolios augmented by FX investment styles are superior in terms of second and third order stochastic dominance. Thus, even an investor who dislikes negatively skewed return distributions would prefer a portfolio augmented by FX investment styles compared to the benchmark. Non-technical SummaryJEL-Classification: G11, G12, G15

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Section: B Mean-variance Efficiency Testsmentioning

confidence: 99%

International Diversification Benefits with Foreign Exchange Investment Styles*

2013

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“…In contrast to our paper, they explore the implication of industry only in a regional framework. Similarly, Eiling et al (2012) show that international returns are primarily driven by industry and currency risk factors in the G7 countries only. The key feature is the use of sector-based data.…”

Section: Related Literaturementioning

confidence: 92%

Emerging Stock Premia: Do Industries Matter?

Lucchetta

Donadelli

2012

SSRN Journal

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This paper studies the dynamics of emerging excess returns in a industry-by-industry context. Differently from the recent financial literature, which mainly focuses on "total market indexes", we perform a standard ex-post empirical analysis aimed at capturing the industries' contribution to country stock performances. We obtain three key empirical findings. First, at industry level, we confirm the "high performance-high volatile nature" as well as the timevarying component of emerging excess returns. Second, at country level and in a dynamic context, we detect those industries that mainly contribute to the presence of emerging stock premia. Third, we show that some industries are much more exposed to global factors than others. We argue that these results display relevant implications for portfolio diversification and reflect consumption smoothing motive Abstract This paper studies the dynamics of emerging excess returns in a industry-by-industry context. Differently from the recent financial literature, which mainly focuses on "total market indexes", we perform a standard ex-post empirical analysis aimed at capturing the industries' contribution to country stock performances. We obtain three key empirical findings. First, at industry level, we confirm the "high performance-high volatile nature" as well as the time-varying component of emerging excess returns. Second, at country level and in a dynamic context, we detect those industries that mainly contribute to the presence of emerging stock premia. Third, we show that some industries are much more exposed to global factors than others. We argue that these results display relevant implications for portfolio diversification and reflect consumption smoothing motive. (JEL: D82, F36,F44 G11, G15. Key wor ds

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“…Moreover, De Nicolo and Kwast (2002) and Binici et al (2013) documented that return correlations among banks' stocks could be explained by bank-specific factors such as their market shares, the size of their total loan portfolios and the level of their non-performing loans. Further, studies of international markets such as Eiling et al (2012) found that equity returns were mainly driven by global industry and currency risk factors. Chiang et al (2015) and Chiang and Chen (2016) found that conditional correlations of returns in Chinese stock markets and the stock markets of the EU, the US and some Asian countries depended on economic variables, such as the variance of oil price changes, the variance premium of the stock market and implied volatilities.…”

Section: Review Of the Relevant Literaturementioning

confidence: 99%

“…Recently, a growing literature on market efficiency has started to examine the linkages between stock markets, or study the relationship between various risk factors and equity returns/volatility (e.g., Fama and French 1992;Ho et al 2005;Eiling et al 2012;Garcia et al 2015;Vidal-Garcia et al 2016). Some researchers have investigated return comovements across international stocks (Bekaert et al 2009;Bekaert et al 2011;Chiang and Chen 2016).…”

Section: Introductionmentioning

confidence: 99%

Determinants of equity return correlations: a case study of the Amman Stock Exchange

Alomari

Power

Tantisantiwong

2017

Rev Quant Finan Acc

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This paper seeks to explain time-varying correlations among equity returns. The literature has shown that fundamental and economic factors can explain stock returns or the volatility of markets. Here, panel data analysis is employed to examine whether these factors can also explain the comovement of stock returns. Time-varying correlations among sectoral indexes are estimated using a restricted multivariate threshold GARCH model with dynamic conditional correlation (DCC-MTGARCH) controlling for the asymmetric effects of news and the influence of financial crises. The empirical results from this panel data analysis show that equity return correlations can be explained not only by macroeconomic variables but also by fundamentals within an industry. JEL classifications: C58; G12; G14; G17

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International portfolio diversification: Currency, industry and country effects revisited

Cited by 48 publications

References 54 publications

International Diversification Benefits with Foreign Exchange Investment Styles*

International Diversification Benefits with Foreign Exchange Investment Styles*

Emerging Stock Premia: Do Industries Matter?

Determinants of equity return correlations: a case study of the Amman Stock Exchange

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