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Dynamic co-movements and diversification benefits: The case of the Greater China region, the UK and the US equity markets

Dynamic co-movements and diversification benefits: The case of the Greater China region, the UK and the US equity markets

Guidi, Francesco, Savva, Christos S. and Ugur, Mehmet ORCID: 0000-0003-3891-3641 (2016) Dynamic co-movements and diversification benefits: The case of the Greater China region, the UK and the US equity markets. Journal of Multinational Financial Management, 35. pp. 59-78. ISSN 1042-444X (doi:https://doi.org/10.1016/j.mulfin.2016.04.002)

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Abstract

This paper investigates the level of long run co-movements and short-run dynamics among the Greater China region (Hong Kong SAR, Mainland China and Taiwan), the UK and the US stock markets. Although stock-price-index (SPI) co-movements are established in the long-run, the dynamic analysis based on a fixed rolling window of 160 weeks points out only intermittent episodes of long run co-movements. Using an asymmetric dynamic covariance approach, we find positive but low and insignificant conditional correlations between stock market returns. These findings indicate scope for diversification benefits, the extent of which is estimated on the basis of different portfolio choices. Our portfolio analysis indicates that both UK and US investors would have secured higher levels of mean returns on the diversified portfolio. Furthermore, pairwise tests of equality show that the differences in the Sharpe ratios are statistically significant only in the case of UK investors.

Item Type: Article
Uncontrolled Keywords: The greater China region; Cointegration; Rolling windows; Conditional correlation; Diversification
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HF Commerce
H Social Sciences > HF Commerce > HF5601 Accounting
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Last Modified: 28 Feb 2019 12:00
Selected for GREAT 2016: None
Selected for GREAT 2017: GREAT b
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/15352

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