Sources of Gains from International Portfolio Diversification

46 Pages Posted: 23 Apr 2004

See all articles by Nuno Fernandes

Nuno Fernandes

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI)

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

This paper looks at the determinants of country and industry specific factors in international portfolio returns using a sample of forty eight countries and thirty nine industries over the last three decades. Country factors have remained relatively stable over the sample period while industry factors have significantly increased during the last decade and dropped again since 2000. The importance of industry and country factors is correlated with measures of economic and financial international integration and development. We find that financial market globalization is the main driving force behind the changes in relative magnitude of the different shocks. Country factors are smaller for countries integrated in world financial markets and have declined as the degree of financial integration and the number of countries pursuing financial liberalizations has increased. Higher international financial integration within an industry increases the importance of industry factors in explaining returns. Economic integration of production also helps in explaining returns. Countries with a more specialized production activity have higher country shocks.

Keywords: International Diversification, industry factors, integration, liberalizations

JEL Classification: G11, G15, F36

Suggested Citation

Fernandes, Nuno and Campa, José Manuel, Sources of Gains from International Portfolio Diversification (December 2005). EFMA 2004 Basel Meetings Paper, Available at SSRN: https://ssrn.com/abstract=487862 or http://dx.doi.org/10.2139/ssrn.487862

Nuno Fernandes (Contact Author)

University of Navarra, IESE Business School ( email )

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European Corporate Governance Institute (ECGI) ( email )

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José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School ( email )

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Madrid, 28023
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

National Bureau of Economic Research (NBER)

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United States

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