International Diversification: An Extreme Value Approach

International diversification has costs and benefits, depending on the degree of assetdependence. In light of theoretical research linking diversification and dependence, weexamine international diversification with two dependence measures: correlations andextreme dependence. We document several findings. First, dependence has generallyincreased over time. Second, there is evidence of asymmetric dependence or downsiderisk in all regions, albeit at different times. Surprisingly, recent Latin American returnsexhibit little downside risk. Third, Latin America exhibits a great deal of correlationcomplexity...