Time-varying integration and international diversification strategies

This paper investigates the impact of globalization and integration on the relative benefits of country and industry diversification. Unlike previous models, our factor model allows asset exposures to vary with both structural changes and temporary fluctuations in theeconomic and financial environment. First, we find that globalization and integration have lead to a gradual convergence of country to industry betas, especially in Europe. Second, not accounting for time-varying factor exposures leads to substantial biases in measuresof country and industry risk. Third, even though the edge has structurally decreased, geographical diversification continues being superior to industry diversification.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

MORE ABOUT NETSPAR


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2019-2023           •           Researchagenda

ABOUT NETSPAR

Our partners

vu
NN_logo_gray
B20190901_nidi-logo_greyscale
B20160708_apg
B20160708_ministeries
View all partners