Taking stock at the new millennium: a study of twelve stock markets

Abstract

Illustrates the impact of major events on UK share prices/returns in the last 35 years and the time series trends of Asian stock markets. Looks at the impact of the 1997 Asian crisis on Asian financial markets from the US investor’s point of view, comparing 1994‐1999 data for the “tiger markets” with the mature markets of the USA, UK and Japan using a conservative investment strategy to “minimize the probability of loss”. Shows that a mixed portfolio gave higher returns than US domestic returns with less risk. Confirms this using the tail index based on extreme value theory; and shows that correlation has a positive relationship with volatility but a negative relationship with returns. Adds that, during stock market downturn, the increase in correlation and volatility may cancel out the benefits of diversification.