Potential gains from international portfolio diversification and inter-temporal stability and seasonality in international stock market relationships

AbstractTo the extent that investors diversify internationally, large-cap stocks receive the dominant share of fund allocation. Increasingly, however, returns to large-cap stocks or stock market indices tend to comove, mitigating the benefits from international diversification. In contrast, stocks of locally oriented, small companies do not exhibit the same tendency. In this paper, we assess the potential of small-cap stocks as a vehicle for international portfolio diversification during the period 1980–1999. We show that the extra gains from the augmented diversification with small-cap funds are statistically significant for both in-sample and out-of-sample periods and remain robust to the consideration of market frictions.

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Comparison of practitioners' views on managing equity investments

Baltic Journal of Management ◽

10.1108/bjm-04-2013-0073 ◽

2014 ◽

Vol 9 (2) ◽

pp. 153-167 ◽

Cited By ~ 5

Author(s):

Lukasz Prorokowski ◽

Paulina Roszkowska

Keyword(s):

Financial Crisis ◽

Stock Market ◽

Stock Markets ◽

Portfolio Diversification ◽

Content Type ◽

Central European ◽

Emerging Stock Markets ◽

International Portfolio Diversification ◽

International Portfolio ◽

Equity Investments

Purpose – The purpose of this paper is to examine the extent to which Central European emerging stock markets (focusing on Poland) have been affected by the recent international financial crisis, and how the current investment climate (barriers, risks, challenges and opportunities) influences appetite for investments in Polish equities. In doing so, the study aims to report timely findings in relation to the determinants of the safety and profitability of international portfolio diversification to the Polish stock market. Design/methodology/approach – Based on qualitative empirical research, the authors analyse the differences between the foreign (UK) and domestic (Poland) investors' views on equity investments in Poland. The study builds on questionnaires and interviews with practitioners associated with the Polish stock market. Findings – The authors report that the global financial crisis influenced changes to domestic and international investors' appetite for risk related to equity investments in emerging stock markets: investors are more prudent about emerging markets but the Polish stock market has shown substantial growth potential and positively distinguished itself from other Central European stock exchanges; particular types of investment risks associated with equity investments in the Polish stock market have abated. Polish equities are an attractive component of the international portfolio diversification, provided that trading strategies are adjusted to the contemporary investment environment. Originality/value – This paper addresses the absence of the academic literature devoted to the analysis of equity investments in the contemporary Central European emerging stock markets. The authors discuss the differences in appetite for risk between the UK and Polish investors and assumptions about investments in Poland. The authors also contribute to the international debate on investor protection and regulations that can improve investment processes.

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