The Risk-Return Profiles Of Global Portfolios: Some Evidence From Asia-Pacific And European Equity Markets

Abstract

As world financial markets are integrated, national stock markets tend to move together. Empirical evidence on correlations among equity markets worldwide suggests an increasing interdependence between most national markets in recent years. This is disconcerting, to say the least, to investors and portfolio managers seeking risk diversification via global equity investing. The objective of this study is to investigate whether there is still room for global portfolio diversification from the U.S. perspective. Specifically, this research examines the statistical significance and magnitude of diversification benefits arising from equity investments in Asia-Pacific (Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea and Taiwan) and Europe (Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Sweden, Switzerland and the United Kingdom) over the period of November 1998 through October 2006. The study provides insights about the extent to which the U.S. investors need to allocate their equity investments in Asia/Pacific and European stock markets so as to benefit from global diversification