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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Strategic Returns to International Diversification: An Application to the Equity Markets of Europe, Japan, and North America
John Ammer and Jianping Mei
1995-502  (February 1995)

Abstract:  We undertake a decomposition of the risk factor loadings of fifteen national stock market returns from 1972 to 1990, using a variant of the Campbell-Shiller (1988) linearization. We find considerable variation among countries in the relative importance of a cash flow component and a discount rate component in determining the beta with the world equity index return and with other risk factors. Also, the international heterogeneity we find in factor loadings suggests that a global portfolio allows substantial hedging opportunities, presumably deriving from differences in underlying economic structure.

Full paper(257 KB PDF)

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