Are the Gains from International Portfolio Diversification Exaggerated? The Influence of Downside Risk in Bear Markets

Are the Gains from International Portfolio Diversification Exaggerated? The Influence of Downside Risk in Bear Markets
Author: Kirt C. Butler
Publisher:
Total Pages: 26
Release: 2002
Genre:
ISBN:

The fundamental rationale for international portfolio diversification is that it expands the opportunities for gains from portfolio diversification beyond those that are available through domestic securities. However, if international stock market correlations are higher than normal in bear markets, then international diversification will fail to yie ld the promised gains just when they are needed most. We evaluate the extent to which observed correlations to monthly returns in bear, calm and bull markets are captured by three popular bivariate distributions: (1) the normal, (2) the restricted GARCH(1,1) of J. P. Morgan's RiskMetrics, and (3) the Student-t with four degrees of freedom. Observed correlations during calm and bull markets are unexceptional compared to these models. In contrast, observed correlations during bear markets are significantly higher than predicted. Higher-than-normal correlations during extreme market downturns result in monthly returns to equal-weighted portfolios of domestic and international stocks that are, on average, more than two percent lower than those predicted by the normal distribution. If the extent of non-normality during bear markets persists over time, then a U.S. investor allocating assets into foreign markets might want to allocate more assets into foreign markets with near-normal correlation profiles and avoid markets with higher-than-normal bear market co-movements.

The 'Bear' and the Benefits of International Portfolio Diversification

The 'Bear' and the Benefits of International Portfolio Diversification
Author: Rui T. Dias
Publisher:
Total Pages: 13
Release: 2006
Genre:
ISBN:

The objective of this paper is to review literature on capital asset pricing models relatively to investment in international assets. Furthermore, we applied the concepts in an empirical analysis of risk diversification and capital asset pricing. We provided a practical exercise on the risk diversification by using recent data that goes through a bear market period. We found evidence that the correlation was time-varying depending on the status of the market.We applied the simple CAPM model to the international setting. The results were consistent with the required restrictions. In the first part of the paper we revised the foundations of the portfolio diversification literature; in the second part we addressed the problem of the diversification of the risk in international investments, in the third part we tested the basic International Capital Asset Pricing Model to the Italian data and in the final part we presented our conclusions.

The Bear Market Survival Guide

The Bear Market Survival Guide
Author: Timothy J. McIntosh
Publisher: Writers Club Press
Total Pages: 0
Release: 2003-03
Genre:
ISBN: 9780595656608

From John Waggoner, Personal Finance Columnist at USA Today; "You'll be seeing a lot of books about bear markets in the coming months, with titles like "How to Survive the Coming Super Bear" and "Canned Goods and Guard Dogs: Your Investment Plan for the New Millennium." This is the book you should read. Tim McIntosh, money manager and Eckerd College finance professor, lays out a sober plan for preserving your money in bear markets, which are as much a part of stock-market investing as bull markets. The Bear Market Survival Guide shows you what to expect in a bear market and how to diversify into different asset classes for basic protection. Experienced investors will enjoy his sector-rotation strategy; beginners will learn from his mutual fund advice. But here's the best part: This is a highly readable work that's packed with first-rate advice". From Kenneth Fisher, CEO, Fisher Investments Inc. and Forbes' "Portfolio Strategy" columnist "A great addition to any investor's bookshelf. Fills in the slot for the intermediate investor on style and sector investing. Will be around for a long time." From Helen Huntley, Personal Finance Editor, St. Petersburg Times "Tim McIntosh shares his strategy for putting together a diversified portfolio that can weather both bull and bear markets and emerge a long-term winner. He challenges conventional thinking that international stocks and small stocks reduce risk and isn't afraid to reveal where he's making his own bets. Reading it should help anyone become a more savvy investor. Reads more like a textbook than a novel". From Michael Holland, Founder & President of the Holland Balanced Fund"In the battle for investment survival, common sense is never in oversupply. The Bear Market Survival Guide provides common sense in abundance, along with compelling data and analysis."

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

The Effect of Extreme Markets on the Benefits of International Portfolio Diversification
Author: Daniella Acker
Publisher:
Total Pages: 34
Release: 2016
Genre:
ISBN:

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.

International Capital Markets

International Capital Markets
Author: G. Andrew Karolyi
Publisher: Edward Elgar Publishing
Total Pages: 520
Release: 2003
Genre: Capital market
ISBN:

The editors of this work have selected the most important papers on the subject of international capital markets to make an authoritative collection. Volume I considers theories of international portfolio choice and asset pricing, and also looks at empirical evidence on international asset pricing models. Volume II covers international portfolio diversification, as well as interest and exchange rates. Volume III includes articles on theories of barriers to international investments; empirical evidence on impact barriers to international investments; international capital flows; and anomalies in international capital markets. The book is designed to be an valuable source of reference for researchers and students alike.

Transmission of Financial Crises and Contagion:

Transmission of Financial Crises and Contagion:
Author: Mardi Dungey
Publisher: Oxford University Press
Total Pages: 232
Release: 2011-01-07
Genre: Business & Economics
ISBN: 0199842604

Financial crises often transmit across geographical borders and different asset classes. Modeling these interactions is empirically challenging, and many of the proposed methods give different results when applied to the same data sets. In this book the authors set out their work on a general framework for modeling the transmission of financial crises using latent factor models. They show how their framework encompasses a number of other empirical contagion models and why the results between the models differ. The book builds a framework which begins from considering contagion in the bond markets during 1997-1998 across a number of countries, and culminates in a model which encompasses multiple assets across multiple countries through over a decade of crisis events from East Asia in 1997-1998 to the sub prime crisis during 2008. Program code to support implementation of similar models is available.