TY  - JOUR
AU  - Goetzmann,William N.
AU  - Li,Lingfeng
AU  - Rouwenhorst,K. Geert
TI  - Long-Term Global Market Correlations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8612
PY  - 2001
Y2  - November 2001
UR  - http://www.nber.org/papers/w8612
L1  - http://www.nber.org/papers/w8612.pdf
N1  - Author contact info:
William N. Goetzmann
School of Management
Yale University
Box 208200
New Haven, CT 06520-8200
Tel: 203/432-5950
Fax: 203/432-3003
E-Mail: william.goetzmann@yale.edu

Lingfeng Li
420 Temple Street  #508
New Haven, CT 06511
Tel: 203/432-3555
Fax: 203/432-6323
E-Mail: lingfeng.li@yale.edu

K. Geert Rouwenhorst
School of Management
Yale University
Box 208200
New Haven, CT 06520-8200
E-Mail: k.rouwenhorst@yale.edu
AB  - In this paper we examine the correlation structure of the major world equity markets over 150 years. We find that correlations vary considerably through time and are highest during periods of economic and financial integration such as the late 19th and 20th centuries. Our analysis suggests that the diversification benefits to global investing are not constant, and that they are currently low compared to the rest of capital market history. We decompose the diversification benefits into two parts: a component that is due to variation in the average correlation across markets, and a component that is due to the variation in the investment opportunity set. There are periods, like the last two decades, in which the opportunity set expands dramatically, and the benefits to diversification are driven primarily by the existence of marginal markets. For other periods, such as the two decades following World War II, risk reduction is due to low correlations among the major national markets. From this, we infer that periods of globalization have both benefits and drawbacks for international investors. They expand the opportunity set, but diversification relies increasingly on investment in emerging markets.
ER  -