Can We Still Benefit from International Diversification? The Case of the Czech and German Stock Markets

0396417 - ÚTIA 2014 RIV CZ eng J - Journal Article
Avdulaj, Krenar - Baruník, Jozef
Can We Still Benefit from International Diversification? The Case of the Czech and German Stock Markets.
Finance a úvěr-Czech Journal of Economics and Finance. Roč. 63, č. 5 (2013), s. 425-442. ISSN 0015-1920. E-ISSN 0015-1920
R&D Projects: GA ČR(CZ) GBP402/12/G097
Institutional support: RVO:67985556
Keywords : portfolio diversification * dynamic correlations * high frequency data * time-varying copulas
Subject RIV: AH - Economics
Impact factor: 0.358, year: 2013
http://library.utia.cas.cz/separaty/2013/E/avdulaj-0396417.pdf

One of the findings of the recent literature is that the 2008 financial crisis caused reduction in international diversification benefits. To fully understand the possible potential from diversification, we build an empirical model which combines generalised autoregressive score copula functions with high frequency data, and allows us to capture and forecast the conditional time-varying joint distribution of stock returns. Using this novel methodology and fresh data covering five years after the crisis, we compute the conditional diversification benefits to answer the question, whether it is still interesting for an international investor to diversify. As diversification tools, we consider the Czech PX and the German DAX broad stock indices, and we find that the diversification benefits strongly vary over the 2008--2013 crisis years.
Permanent Link: http://hdl.handle.net/11104/0224324