Globalization's Impact on the Effectiveness of Diversificaiton

Open Access
Author:
Deebel, Kathryn Elizabeth
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Louis Gattis Jr., Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
Keywords:
  • Globalization
  • Diversification
  • Correlations
  • index
  • Investor
Abstract:
Financial experts praise diversification for its benefits in risk reduction. However, with the introduction of modern technology, the world, its countries, companies, and economies are more interrelated and connected then ever. When nations such as Greece, Italy, or China experience periods of economic or political distress, investors begin to panic worldwide. In fact, from 2000 to 2015 the world has experienced significant changes in several different market areas, and within the economies in certain geographical areas. Therefore, it is of paramount importance to revisit the benefits of diversification through correlations, and what happens to the standard deviations of a portfolio, all else held constant. This paper attempts to answer if globalization, higher correlations, and greater market integration from the years 2000-2015 are occurring, and if these changes have an impact on the effectiveness of diversification for the average American investing internationally.