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The Persistency of International Diversification Benefits: The Role of The Asymmetry Volatility Model

Author

Listed:
  • Ung Sze Nie

    (Graduate School of Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia)

  • Choo Wei Chong

    (Department of Management and Marketing, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia)

  • Murali Sambasivan

    (Taylor's Business School, Taylor's University Lakeside Campus, 1 Jalan Taylor’s, 47500 Subang Jaya, Malaysia)

  • Annuar Md. Nassir

    (Department of Accounting and Finance, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia)

Abstract

This study restates the issue of international portfolio diversification benefits by considering the problem of perfect foresight assumption and constant variancecovariance estimation. Whilst emphasising the role of the asymmetry volatility model in portfolio formation, we also investigate the economic implication of the smooth transition exponential smoothing (STES) method in portfolio risk management. Our results suggest that all portfolios perform better in the ex-post period compared to the ex-ante period. However, investors may not be able to obtain any benefits from diversifying their portfolio in developed stock markets in both ex-ante and ex-post periods. Further investigation on the economic implications of the STES method also show that the STES method does help to cushion losses generated from the international diversification portfolio. Hence, this suggests the use of the STES method in computing and monitoring the risk of an internationally diversified portfolio.

Suggested Citation

  • Ung Sze Nie & Choo Wei Chong & Murali Sambasivan & Annuar Md. Nassir, 2014. "The Persistency of International Diversification Benefits: The Role of The Asymmetry Volatility Model," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(1), pages 152-165.
    • Handle: RePEc:usm:journl:aamjaf01001_152-165
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    Cited by:

    1. Alexandrino Tavares Barreto, 2018. "The Contribution of African Capital Markets in the Diversification of European Investment Portfolios," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(3), pages 1-29, March.

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