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The Co-Movement of U.S. Equity Returns with the Developed and Emerging Markets of Australasia and Asia

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Listed:
  • Earl D. Benson

    (Professor of Finance, Department of Finance and Marketing, Western Washington University, Bellingham, WA 98225,)

  • Sophie X. Kong

    (Associate Professor of Finance, Department of Finance and Marketing, Western Washington University, Bellingham, WA 98225,)

Abstract

This paper examines the behavior of the monthly and daily correlation coefficients and co-variances of a broad set of Pacific Basin equity markets compared to the S&P 500 index, showing that the correlations and co-variances vary greatly over time and across markets. Many discussions of international diversification focus solely on the recent correlations of returns of international equities. It seems clear from the evidence presented here that the near complete reliance on recent correlation coefficients to describe the diversification benefits of individual foreign markets is misdirected. Not only should correlations over several periods be examined but also other risk measures should be included in the examination. This research illustrates that the Pacific Basin markets which exhibit the lowest correlations with the U.S. market may not be the lowest risk markets when additional factors such as covariance, skewness, and kurtosis are taken into consideration.

Suggested Citation

  • Earl D. Benson & Sophie X. Kong, 2015. "The Co-Movement of U.S. Equity Returns with the Developed and Emerging Markets of Australasia and Asia," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(1), pages 102-117, January.
    • Handle: RePEc:mir:mirbus:v:5:y:2015:i:1:p:102-117
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    References listed on IDEAS

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    More about this item

    Keywords

    Asian equity markets; correlation of returns; international diversification.;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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