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Where to Hide in Bad Times: Or Should One Still Diversify Internationally?
Stefanova, Denitsa; Elkamhi, Redouane
20162016 Paris Financial Management Conference
 

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Keywords :
Asset Allocation; Dynamic Correlations; Asymmetric Dependence
Abstract :
[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.
Disciplines :
Finance
Author, co-author :
Stefanova, Denitsa  ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF)
Elkamhi, Redouane;  University of Toronto - U of T
External co-authors :
yes
Language :
English
Title :
Where to Hide in Bad Times: Or Should One Still Diversify Internationally?
Publication date :
2016
Event name :
2016 Paris Financial Management Conference
Event date :
from 12-12-2016 to 14-12-2016
Focus Area :
Finance
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since 04 May 2017

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