THE CO-MOVEMENTS OF NATIONAL STOCK MARKETS AND GLOBAL PORTFOLIO DIVERSIFICATION: 2001-2010
THE CO-MOVEMENTS OF NATIONAL STOCK MARKETS AND GLOBAL PORTFOLIO DIVERSIFICATION: 2001-2010
Author(s): Benjamin H. EICHHORN, Ilhan Meric, Gulser Meric, Charles W. McCCALLSubject(s): Economic history, Transformation Period (1990 - 2010), Financial Markets
Published by: Editura Universităţii »Alexandru Ioan Cuza« din Iaşi
Keywords: Co-Movements of Global Stock Markets; Global Portfolio Diversification;
Summary/Abstract: Global portfolio diversification is recommended because of low correlation between national equity markets. However, recent empirical studies find that correlation between national stock markets has been increasing and the benefit of global portfolio diversification has been decreasing. In this paper we test this hypothesis by using the principal components analysis methodology with data from 38 global stock markets for the 2001-2010 period. We divide this 10-year period into two consecutive 5-year periods and we apply principal components analysis to each sub-period separately. We find seven statistically significant principal components for the 2001-2005 period and only three statistically significant principal components for the 2006-2010 period. Our findings indicate that the co-movements of global stock markets have become significantly closer and the global portfolio diversification benefit has decreased considerably during the 2001-2010 period.
Journal: Review of Economic and Business Studies (REBS)
- Issue Year: 2011
- Issue No: 8
- Page Range: 87-98
- Page Count: 12
- Language: English
