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Globalization and portfolio risk over time: The role of exchange rate

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  • Iraj J. Fooladi
  • John Rumsey

Abstract

We examine benefits of international diversification for the period 1 January 1988 to 30 June 2000. We introduce a new variable (lambda) that measures these benefits more directly than do the pairwise correlations among equity markets, which are used in most other studies. Our study shows that despite international integrations, the benefits of international diversification measured in USD persist. Using lambda, we provide evidence that the increase in co‐movements between equity market returns (measured in local currencies) has been counterbalanced by movements in exchange rates. We confirm our results by subjecting the trend in lambda to several tests.

Suggested Citation

  • Iraj J. Fooladi & John Rumsey, 2006. "Globalization and portfolio risk over time: The role of exchange rate," Review of Financial Economics, John Wiley & Sons, vol. 15(3), pages 223-236.
    • Handle: RePEc:wly:revfec:v:15:y:2006:i:3:p:223-236
    DOI: 10.1016/j.rfe.2005.05.001
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    References listed on IDEAS

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