International Diversification with Large- and Small-Cap Stocks

2008 ◽  
Vol 43 (2) ◽  
pp. 489-524 ◽  
Author(s):  
Cheol S. Eun ◽  
Wei Huang ◽  
Sandy Lai
Keyword(s):  
Stock Market ◽  
International Diversification ◽  
Portfolio Diversification ◽  
Market Frictions ◽  
Small Companies ◽  
Fund Allocation ◽  
International Portfolio Diversification ◽  
International Portfolio ◽  
Out Of Sample

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.

Comparison of practitioners' views on managing equity investments

2014 ◽  
Vol 9 (2) ◽  
pp. 153-167 ◽  
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.

scholarly journals Are Strategies for International Diversification by Country, Industry and Region Equivalent?

2021 ◽  
Vol 10 (1) ◽  
pp. 204-221
Author(s):  
Rachid Ghilal ◽  
Ahmed Marhfor ◽  
M'Zali Bouchra ◽  
Jean Jacques Lilti
Keyword(s):  
International Diversification ◽  
Cointegration Analysis ◽  
Portfolio Diversification ◽  
International Portfolio Diversification ◽  
International Portfolio ◽  
New Strategy ◽  
Cross Country ◽  
The Cross ◽  
Regional Diversification ◽  
Second Period

In this study, we examine whether international portfolio diversification still matters despite an increase in the cross-country correlations of assets returns. More specifically, we explain why an increase in global return correlations does not necessarily imply a reduction in the benefits of international portfolio diversification. We also propose to compare empirically two traditional strategies of international diversification (by country and industry) in addition to a new strategy (by region) using two different methodological approaches, namely the mean variance spanning and multivariate cointegration analysis. Over the full sample period (1994- 2008), our results suggest that the three strategies of international diversification remain effective despite the secular increase in the cross-country return correlations. When we divide the sample into two different sub-periods (1994-2000 and 2000-2008), the findings indicate that the strategy based on regional diversification proved to be a new competing strategy during the second period in comparison to the other two traditional strategies.

scholarly journals Market frictions and the geographical location of global stock exchanges. Evidence from the S&P Global Index

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Andros Gregoriou ◽  
Robert Hudson
Keyword(s):  
Latin America ◽  
Generalized Method Of Moments ◽  
Portfolio Diversification ◽  
Market Frictions ◽  
Trading Costs ◽  
Content Type ◽  
International Portfolio Diversification ◽  
International Portfolio ◽  
The Usa ◽  
The Impact

PurposeWe examine the impact of market frictions in the form of trading costs on investor average holding periods for stocks in the S&P global 1200 index to examine constraints on international portfolio diversification.Design/methodology/approachWe determine whether it is appropriate to pool stocks listed in the USA, Canada, Latin America, Europe, Japan, Asia and Australia into investigations using the same empirical specification. This is very important because the pooled effects may not provide consistent estimates of the average.FindingsWe report overwhelming econometric evidence that it is not valid to pool stocks in all the underlying regional equity indices for our investigation, indicating that the effect of frictions varies between markets.Research limitations/implicationsWhen we pool the stocks within markets, we discover that for companies listed in the USA, Europe, Canada and Australia, market frictions do not significantly influence holding periods and hence are not a barrier to portfolio rebalancing. However, companies listed in Latin America and Asia face market frictions, which are significant in terms of increasing holding periods.Practical implicationsWe ascertain that taking into account the properties of stock markets in different geographical locations is vital for understanding the limits on achieving international portfolio diversification.Originality/valueUnlike prior research, we overcome the problems caused by contemporaneous correlation, endogeneity and joint determination of investor average holding periods and trading costs by employing the Generalized Method of Moments (GMM) system panel estimator. This makes our empirical estimates robust and more reliable than the previous empirical research in this area.

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