The degree of comovement across national stock markets has increased dramatically since the mid-1990s. This has overturned a stylized fact in the international portfolio diversification literature that diversifying across countries is more effective for risk reduction than diversifying across...

Nontrivial diversification possibilities arise when a factor model describes security returns. This paper catalogs the merits of alternative strategies for constructing basis portfolios to mimic the common factors. We show how to use the \chi ² statistic for the joint significance of mean basis...