The Effect of Extreme Markets on the Benefits of International Portfolio Diversification

Acker, Daniella; Duck, Nigel W.

Volume 13, Numbers 3 & 4 / September/December , Pages 155-321

Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 155-188

Daniella Acker , University of Bristol, U.K. Corresponding Author

Nigel W. Duck , University of Bristol, U.K.

Abstract:
We investigate the effects of bull and bear markets on correlations between developed and emerging country equity returns, and on the benefits of combining international markets in a portfolio. Contrary to most other studies we find that correlations fall in both bull and bear markets, although far more in the former; that emerging markets provide both additional diversification benefits for investors in developed markets and, especially, some protection during bear markets.

Keywords : International equity markets; correlations; portfolio choice
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