Burhan F. Yavas, PhD, is an adjunct professor, working as a class advisor for Presidential Key Executive (PKE) MBA at the Graziadio School of Business and Management. 17907 March 2012, Revised December 2014 JEL No. The analysis carried out here did not deal with currency risk since fluctuating currency values may reduce or enhance returns. Influences contributing to an increased general level of correlation among markets and markets integration include the following: While some controversy exists among investment professionals regarding the benefits and costs of international portfolio investment, there is agreement that international equity portfolio diversification recommendations are based on the existence of low correlations among national stock markets. This result may indicate that the Nikkei 225 returns are much more correlated with the S&P 500 returns after the close of the U.S. market than would be the reverse case. The Japanese stock market, on the other hand, had almost no significant effect on the movement of the other markets. The findings reported in Table 3 following the September 11, 2001 terrorist attacks indicate that the correlations between Germany and the U.S. increased significantly. ETF products track portfolios designed explicitly to allow internationally comparable benchmark performances yet can be easily traded on organized exchanges. We next focus our attention on the influence of the German market on that of the U.S. We close the loop by studying lagged correlations in terms of the U.S. market’s influence on Japan and Germany. It is found that, the market returns of the sampled countries are not definitely correlated in the short- and long-term. Benefits of International Portfolio Diversification. Dr. Hesse has taught management science using spreadsheets since 1982 in both engineering and business schools, and at both the graduate and undergraduate levels. A diversified portfolio is more stable because not all investments will move in sync, making it less susceptible to huge movements in the market. Finally, we utilize event methodology to test the hypothesis that correlations among markets are significantly higher following exogenous events. Using averages, domestic stock funds gained 12.6 percent in 2006 compared to 25.5 percent for international stock funds. Purpose – This paper aims to investigate opportunities of the short- and long-run international portfolio diversification (IPD) benefits by investing in the Middle Eastern oil-producing countries. Diversification is the tool to protect investors from the unknown risks at the time of purchase. Over the past decades, IPD has been the integral feature of global capital markets. This paper aims to investigate opportunities of the short- and long-run international portfolio diversification (IPD) benefits by investing in the Middle Eastern oil-producing countries. He consults for corporations and financial institutions in the areas of export-import management, market surveys business forecasting, and corporate strategy. Jamaledin Mohseni Zonouzi, S., Mansourfar, G. and Bagherzadeh Azar, F. (2014), "Benefits of international portfolio diversification: Implication of the Middle Eastern oil-producing countries", International Journal of Islamic and Middle Eastern Finance and Management, Vol. In conclusion, international diversification will result in risk reduction for a given return as long as the correlation coefficient between the domestic and the foreign market is less than one (i.e., less than 100 percent). Smart investors invest in more than stocks. Finally, the U.S. and Japanese markets moved together 54.2 percent of the time (See table 1). Despite the significant interdependencies among the markets studied, room for international portfolio diversification nevertheless seems possible. 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