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Corporate International Diversification and Market Assigned Measures of Risk and Diversification

Published online by Cambridge University Press:  19 October 2009

John S. Hughes ,
Dennis E. Logue  and
Richard James Sweeney
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Extract

Recent evidence supports the notion that capital markets are substantially integrated in a return/systematic risk sense [1, 12]. Other studies show that investors can reduce the total level of risk borne without reducing expected returns by holding an internationally diversified portfolio [8, 9, 17]. Together these studies imply that the various economies mirrored by financial markets are not perfectly integrated. Some assert, however, that because of controls on capital flows, differential trading costs, different tax structures, and a number of other factors, markets are imperfectly (albeit substantially) integrated. Hence investors may not actually be diversifying internationally and thus forego advantages which would accrue to them if they were willing to hold foreign security issues.

Type
VI. Capital Budgeting Decsions
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 4 , November 1975 , pp. 627 - 637
Copyright
Copyright © School of Business Administration, University of Washington 1975

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References

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