Reference : Where to Hide in Bad Times: Or Should One Still Diversify Internationally?
Scientific congresses, symposiums and conference proceedings : Unpublished conference
Business & economic sciences : Finance
Where to Hide in Bad Times: Or Should One Still Diversify Internationally?
Stefanova, Denitsa mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Elkamhi, Redouane [University of Toronto - U of T]
2016 Paris Financial Management Conference
from 12-12-2016 to 14-12-2016
[en] Asset Allocation ; Dynamic Correlations ; Asymmetric Dependence
[en] Among the stylized features of international equity markets is the pronounced asymmetric nonlinear dependence and upward trend in correlations. Such features call into question investors' efforts to diversify internationally. We propose a model to capture those well understood characteristics of international equity index returns. Casting them in a dynamic portfolio problem, we evaluate the gains for a home-biased investor from including foreign assets in her portfolio. We find that accounting for the optimal dynamic demand for hedging on top of a standard mean-variance portfolio policy brings substantial benefits from international portfolio exposure. Such benefits become increasingly sizeable over long investment horizons.

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