English, Article, Journal or magazine article edition: International equity holdings and stock returns correlations: Does Diversification Matter At All for Portfolio Choice? Nicolas Coeurdacier; Stéphane Guibaud

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Bookmark: http://trove.nla.gov.au/version/44411
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • International equity holdings and stock returns correlations: Does Diversification Matter At All for Portfolio Choice?
Author
  • Nicolas Coeurdacier
  • Stéphane Guibaud
Physical Description
  • preprint
Notes
  • Do investors completely ignore the basics of portfolio theory? Given their over-exposure on domestic risk, investors should try to hedge this risk by picking foreign assets that have low correlation with their home assets. In the data though, we find a robust positive relationship between bilateral equity holdings and bilateral return correlations. We argue that this finding could be driven by the common impact of "financial integration" on cross-border equity holdings and on cross-market correlations. Indeed, when we instrument current correlation with past correlation to control for endogeneity, we recover asset demand functions that decrease with return correlation.
  • RePEc:pse:psecon:2005-23
Language
  • English
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