[1] Few things to think about on equity diversification from a brilliant academic paper we recently summarised 🗒️
The paper explores whether the liberalisation and integration of financial markets have limited...
The paper explores whether the liberalisation and integration of financial markets have limited...
[2] ...investors’ opportunities to diversify risk across countries. They have not.
Chart 3 shows the time-series behaviour of average corr. between countries. On avg across the 63 countries, global equity price correlation has not increased significantly over the last 40 years.
Chart 3 shows the time-series behaviour of average corr. between countries. On avg across the 63 countries, global equity price correlation has not increased significantly over the last 40 years.
[3] Instead, correlation jumps during crises but drops after. Over the last 10 years, global interconnectedness appears to have fallen.
[4] On an industry level, the correlations are even smaller. That is, the equity prices of different industries within the same country are less correlated than the same industries across countries.
[5] Correlations between industries across countries are even lower (so, for example, banks are highly uncorrelated with healthcare in different countries).
[6] The findings imply the best diversification strategy for #equity investors is to choose equities across different countries and different industries. Even more diversification benefit comes from investing in EM countries.
[7] The average EM industry (e.g., tech in India) has a correlation of only 0.16 to the same global industry (e.g., a global tech index) versus 0.34 in developed markets.
For our full summary and a link to the paper, see here: macrohive.com/deep-dives/div…
• • •
Missing some Tweet in this thread? You can try to
force a refresh
