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. We find that, contrary to most other studies, 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 in bear markets; the effects on portfolio performance of changes in correlations and standard deviations of returns in extreme markets are very small compared to the effect of changes in mean returns.
|Translated title of the contribution||The Effect of Extreme Markets on the Benefits of International Portfolio Diversification|
|Pages (from-to)||155 - 188|
|Number of pages||33|
|Journal||Multinational Finance Journal|
|Issue number||3 & 4|
|Publication status||Published - Dec 2009|