Investments, tenth edition

  Are Benefits from International Diversification 

Preserved in Bear Markets? 

 Some studies suggest that correlation in country portfolio returns increases during peri-

ods of turbulence in capital markets.  

6

   If so, benefits from diversification would be lost 

  

6

 F. Longin and B. Solnik, “Is the Correlation in International Equity Returns Constant: 1960–1990?”  Journal of 

International Money and Finance  14 (1995), pp. 3–26; and Eric Jacquier and Alan Marcus, “Asset Allocation 

Models and Market Volatility,”  Financial Analysts Journal  57 (March/April 2001), pp. 16–30. 

World

U.S.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0

2

4

6

8

10

12

Standard Deviation (% per month)

Expected Monthly Excess Return (%)

World CML

Efficient Frontier w/ No Short Sales

Efficient Frontier w/ Short Sales

Country Portfolios