Critics of international diversification observe that it does not protect investors against short-term market crashes because markets become more correlated during downturns. Although true, this observation misses the big picture. Over longer horizons, underlying economic growth matters more...

Investors and financial economists have long debated the benefits of global equity market diversification. Fans argue that diversifying globally reduces portfolio risk without harming long-term return. Some critics counter with the observation that because markets get more correlated during...

The authors show that leverage aversion changes the predictions of modern portfolio theory: Safer assets must offer higher risk-adjusted returns than riskier assets. Consuming the high risk-adjusted returns of safer assets requires leverage, creating an opportunity for investors with the ability...