IIIS Discussion Paper No.167/June 2006 International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility
نویسندگان
چکیده
We examine if the benefits of international portfolio diversification are robust to time-varying asset return volatility. Since diversified portfolios are subject to common cross-country shocks, we focus on the transmission mechanism of such shocks in the presence of regime-switching volatility. We find little evidence of increased market interdependence in turbulent periods. Furthermore, for the vast majority of time, we show that risk reduction is delivered for the US investor who holds foreign equity.
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