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Volume 32 Number 2 December 2007 |
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Disaggregated Analysis of Movements in East Asian Regional Stock Volatility |
| Stephen J. Sault
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Abstract |
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In the absence of comprehensive evidence regarding disaggregated volatility and
correlations, this paper applies a disaggregated approach to examine these characteristics in the East Asia region. Testing commences with an examination of portfolio risk faced by an East Asian investor with the application and extension of the models advanced by Campbell, Lettau, Malkiel and Xu (2001) to a portfolio
of East Asian stocks. Thereafter, we identify diversification benefits accruing
to investors expanding their portfolio composition beyond Australian securities
(Sault 2005) to include stocks within the East Asia region. Testing reveals that
an increase in the geographical scope of the investment opportunity set is coupled with decreases in mean levels of volatility and correlations. Further, investors holding this regionally diversified portfolio are rewarded by reduced correlations during times of increased volatility, highlighting the benefits of wider-reaching diversification.
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Keywords |
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VOLATILITY, DISAGGREGATION OF VOLATILITY, CORRELATION, DIVERSIFICATION BENEFITS
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Contact DetailsStephen J. SaultSchool of Finance and Applied Statistics, Faculty of Economics and Commerce, Australian National University, Canberra, ACT, 0200. Email: Stephen.Sault@anu.edu.au |
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