1. Recent contributions include Cotter, Gabriel, and Roll (2017) and Bekaert et al. (2011), who document the increasing co-movement of major international markets since the early 2000s. Bekaert and Harvey (2017) argue that developing economies still offer diversification opportunities due to their incomplete integration with mature markets, which according to Bekaert et al. (2011), is also explained by the limited development of their stock markets. We refer to these papers for an in-depth review of the literature.
2. The Other Europe region includes Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland. The Asia ex Japan region includes Australia, Hong Kong, Singapore, and New Zealand.
3. Our empirical evidence regarding the United States may appear at odds with the existing literature. For example, Fama and French (1993, 2016) find that a US value portfolio offers significant average excess returns. These discrepancies are explained by the use of different sample periods. The US time series in this paper is shorter than in other studies in order to have consistent sample periods across regions. Comparing the overlapping periods, despite some differences in the data sources and methodologies, the factors estimated in this paper are consistent with the returns published on Kenneth French’s website.
4. Of course, this evidence does not rule out the size factor as potentially useful in asset pricing models.
5. See Longin and Solnik (2001), Ang and Bekaert (2002), and Campbell, Koedijk, and Kofman (2002) for evidence regarding asset classes.
6. See Viciera, Wang, and Zhou (2017), Bekaert and Harvey (2017), and Cotter, Gabriel, and Roll (2017) for evidence regarding asset classes.
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Bekaert, Geert, and Campbell Harvey. 2017. “Emerging Equity Markets in a Globalizing World.” Duke Innovation & Entrepreneurship Initiative Working Paper Series.
Bekaert, Geert, Campbell Harvey, Christian Lundblad, and Stephan Siegel. 2011. “Global Growth Opportunities and Market Integration.” Journal of Finance, vol. 62, no. 3 (June):1081–1137.
Binstock, Jay, Engin Kose, and Michele Mazzoleni. 2017. “Diversification Strikes Again: Evidence from Global Equity Factors.” Available at SSRN.
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Cotter, John, Stuart Gabriel, and Richard Roll. 2017. “Nowhere to Run, Nowhere to Hide: Asset Diversification in a Flat World.” Caltech Division of the Humanities and Social Sciences Working Paper #1425.
Fama, Eugene, and Kenneth French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, vol. 33, no. 1 (February):3–56.
———. 2016. “Dissecting Anomalies with a Five-Factor Model.” Review of Financial Studies, vol. 29, no. 1 (January):69–103.
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Viciera, Luis, Zixuan Wang, and John Zhou. 2017. “Global Portfolio Diversification for Long-Horizon Investors.” Harvard Business School Finance Working Paper No. 17−085.