Have World, Country and Industry Risk Changed Over Time? An Investigation of the Developed Stock Markets Volatility
42 Pages Posted: 31 Jul 2003
Date Written: March 2004
This paper uses a volatility decomposition method to study the time series behavior of equity volatility at the world, country and local industry levels. Between 1974 and 2001 there is no noticeable long-term trend in any of the volatility measures. Then in the 1990s, there is a sharp increase in local industry volatility compared to market and country volatility. Thus, correlations among local industries have declined. More assets are needed to achieve a given level of diversification, and there is more of a penalty for not being well diversified by industry. Local industry volatility leads the other volatility measures.
Keywords: Developed markets volatility, industry risk, country risk, international portfolio diversification
JEL Classification: G11, G12, G15, F30
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