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Advances in Financial Risk Management pp 225–252Cite as

Palgrave Macmillan

International Portfolio Diversification and the 2007 Financial Crisis

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Abstract

By diversifying stock selection on an international basis, portfolio managers hope to improve the trade-off between risk and reward through a reduction in within-portfolio correlation levels. Although the benefits of this procedure can be considerable, the process of stock selection is not always clear cut. It was argued more than twenty years ago by French and Poterba (1991) that behavioral factors, such as biases in investor expectations, can lead to under-diversification in the international dimension. Portfolio managers wanting to optimize their stock selection can now be seen to face another important issue; namely, whether or not financial crisis results in significant long-term permanent changes in between-market correlation levels.

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Authors
  1. Jacek Niklewski
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  2. Timothy Rodgers
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Editor information

Editors and Affiliations

  1. Monash University, Melbourne, Australia

    Jonathan A. Batten

  2. Hong Kong University of Science and Technology, Hong Kong

    Peter MacKay

  3. Department of Business and Economics, University of Passau, Germany

    Niklas Wagner

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© 2013 Jacek Niklewski and Timothy Rodgers

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Niklewski, J., Rodgers, T. (2013). International Portfolio Diversification and the 2007 Financial Crisis. In: Batten, J.A., MacKay, P., Wagner, N. (eds) Advances in Financial Risk Management. Palgrave Macmillan, London. https://doi.org/10.1057/9781137025098_10

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