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hypohesis identification. Define the business research and its purpose.
Abstract Abstract The correlation structure of the world ...
Submitted by sambo1 on April 17, 2007
Category: Science
Words: 1414 | Pages: 6
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Define the business research and its purpose. Abstract
Abstract
The correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration. We decompose diversification benefits into two parts: one component due to variation in the average correlation across markets, and another component due to the variation in the investment opportunity set. From this, we infer that periods of globalization have both benefits and drawbacks for international investors. Globalization expands the opportunity set, but as a result, the benefits from diversification rely increasingly on investment in emerging markets.
We test two null hypotheses. The first is that the correlation matrices from two periods are equal element by element. This is equivalent to a joint hypothesis that the correlation coefficients of any two countries are the same in the two periods of interest. The second hypothesis is that the average of the cross-country correlation coefficients are the same in two periods. In most cases, the second hypothesis is a weaker version of the first. In the appendix we discuss the details of the test and address issues of the size and power.
Explain the business problem(s) under investigation
Considering the widespread belief in the benefits to international diversification over the past 100 200 years and the current importance of diversification for research and practice in international finance, we believe that it is important to examine how international diversification has actually fared, not just over the last 30 years since the beginnings of academic research, but over much longer intervals of world market history. In this paper, we use long-term historical data to ask whether the global diversification strategies developed by Henry Lowenfeld and his predecessors actually served investors well over the last century and a half. In addition, we consider...
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