NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Zixuan Wang

Harvard Business School
Baker Library
Boston MA 02163

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NBER Working Papers and Publications

May 2018Global Portfolio Diversification for Long-Horizon Investors
with Luis M. Viceira: w24646
This paper conducts a theoretical and empirical investigation of global portfolio diversification for long-horizon investors in the presence of permanent cash flow shocks and transitory discount rate shocks to asset prices and returns. An increase in the cross-country correlations of cash flow shocks raises the risk of a globally diversified portfolio at all horizons. By contrast, an increase in the cross-country correlations of discount rate shocks has a muted effect on portfolio risk at long horizons and does not diminish the benefits of global portfolio diversification to long-term investors. Empirically, we find that increased correlations of discount rate shocks resulting from financial globalization appear to be the main driver of an estimated secular increase in the cross-country co...
 
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