Long-Run international diversification

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Title: Long-Run international diversification
Authors: Conlon, Thomas
Cotter, John
Gençay, Ramazan
Permanent link: http://hdl.handle.net/10197/6485
Date: 27-Feb-2015
Abstract: Prevailing wisdom in finance suggests long-run investors have a competitive advantage, since they can ride out short-run fluctuations and mispricing, and pursue illiquid investments. This paper investigates if this advantage holds in a portfolio context, examining benefits of international diversification across short- and longrun horizons. Employing a multi-horizon non-parametric filter, increased long-run correlations between international equity markets are detailed, even for synchronized markets. A model replicating the temporal aggregation properties of intermarket correlation is developed, indicating that short-run correlations are downward biased by frictions. Finally, the impact on portfolio allocation is investigated, demonstrating decreased risk reduction benefits in the long-run.
Funding Details: Science Foundation Ireland
Type of material: Working Paper
Publisher: University College Dublin. Geary Institute
Keywords: InvestorsInternational equity marketsRisk reduction
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Geary Institute Working Papers
Business Research Collection

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