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European Economy. Economic Papers
Lieven Baele, Tilburg University, CentER, and Netspar; Koen Inghelbrecht, Ghent University
(European Economy. Economic Papers. 333. July 2008.
Brussels. 58pp. Tab. Graph. Ann. Bibliogr. )
KC-AI-08-333-EN ISBN: 978-92-79-08258-0 ISSN: 1735-3187
This paper investigates the impact of globalization and integration on the relative benefits of country and industry diversification.
Unlike previous models, our factor model allows asset exposures to vary with both structural changes and temporary fluctuations in the economic and financial environment.
First, we find that globalization and integration have lead to a gradual convergence of country to industry betas, especially in Europe.
Second, not accounting for time-varying factor exposures leads to substantial biases in measures of country and industry risk.
Third, even though the edge has structurally decreased, geographical diversification continues being superior to industry diversification.
JEL classification: G11, G12, G15, C32, F37
doi:10.2765/84106
Unlike previous models, our factor model allows asset exposures to vary with both structural changes and temporary fluctuations in the economic and financial environment.
First, we find that globalization and integration have lead to a gradual convergence of country to industry betas, especially in Europe.
Second, not accounting for time-varying factor exposures leads to substantial biases in measures of country and industry risk.
Third, even though the edge has structurally decreased, geographical diversification continues being superior to industry diversification.
JEL classification: G11, G12, G15, C32, F37
doi:10.2765/84106
Last update: 22/12/2009 | Top