Strategic Returns to International Diversification: An Application to the Equity Markets of Europe, Japan, and North America
Abstract
We undertake a decomposition of the risk factor loadings of fifteen national stock market returns from 1972 to 1990, using a variant of the Campbell-Shiller (1988) linearization. We find considerable variation among countries in the relative importance of a cash flow component and a discount rate component in determining the beta with the world equity index return and with other risk factors. Also, the international heterogeneity we find in factor loadings suggests that a global portfolio allows substantial hedging opportunities, presumably deriving from differences in underlying economic structure.
ABSTRACT We undertake a decomposition of the risk factor loadings of fifteen national stock market returns from 1972 to 1990, using a variant ofthe Campbell-Shiller (1988) linearization. We find considerable variation among countries in the relative importance of a cash flow component and a discount rate component in determining the beta with the world equity index return and with other risk factors. Also, the international heterogeneity we find in factor loadings suggests that a global portfolio allows substantial hedging opportunities, presumably deriving from differences in underlying economic structure.
Cite this document
John Ammer and Jianping Mei (1995). Strategic Returns to International Diversification: An Application to the Equity Markets of Europe, Japan, and North America (IFDP 1995-502). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-502
@techreport{wtfs_ifdp_1995_502,
author = {John Ammer and Jianping Mei},
title = {Strategic Returns to International Diversification: An Application to the Equity Markets of Europe, Japan, and North America},
type = {International Finance Discussion Papers},
number = {1995-502},
institution = {Board of Governors of the Federal Reserve System},
year = {1995},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-502},
abstract = {We undertake a decomposition of the risk factor loadings of fifteen national stock market returns from 1972 to 1990, using a variant of the Campbell-Shiller (1988) linearization. We find considerable variation among countries in the relative importance of a cash flow component and a discount rate component in determining the beta with the world equity index return and with other risk factors. Also, the international heterogeneity we find in factor loadings suggests that a global portfolio allows substantial hedging opportunities, presumably deriving from differences in underlying economic structure.},
}