Open AccessAre Strategies for International Diversification by Country, Industry and Region Equivalent?
Author(s) -
Rachid Ghilal,
Ahmed Marhfor,
Bouchra M’Zali,
Jean Jacques Lilti
Publication year - 2021
Publication title -
acrn journal of finance and risk perspectives
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.122
H-Index - 2
ISSN - 2305-7394
DOI - 10.35944/jofrp.2021.10.1.011
Subject(s) - diversification (marketing strategy) , cointegration , portfolio , economics , financial economics , sample (material) , econometrics , business , marketing , chemistry , chromatography
In this study, we examine whether international portfolio diversification still matters despite an increase in the cross-country correlations of assets returns. More specifically, we explain why an increase in global return correlations does not necessarily imply a reduction in the benefits of international portfolio diversification. We also propose to compare empirically two traditional strategies of international diversification (by country and industry) in addition to a new strategy (by region) using two different methodological approaches, namely the mean variance spanning and multivariate cointegration analysis. Over the full sample period (1994- 2008), our results suggest that the three strategies of international diversification remain effective despite the secular increase in the cross-country return correlations. When we divide the sample into two different sub-periods (1994-2000 and 2000-2008), the findings indicate that the strategy based on regional diversification proved to be a new competing strategy during the second period in comparison to the other two traditional strategies.