| Summary: | To optimize the benefits to be gained by the investor from international
diversification policy, it is inseparable from the problem of correlation between
the capital market, because the correlation between the markets associated with
the movement of capital, when the correlation between the capital market the
higher the benefits of international diversification will be smaller, as well as
correlation between the capital market is low, the benefits of international
diversification will be even greater.
The purpose of this study was to see the benefits of international
diversification among emerging capital markets with the developed capital
markets when the market is bullish conditions (before the subprime mortgage
crisis) and bearish (when the subprime mortgage crisis). Use of bullish and
bearish periods related to the correlation between the stock market which is the
basis for calculating the benefits of international diversification. The sample in
this study consisted of developed markets represented by the United States
(NYSE), Japan (NIKKEI) and UK (FTSE), while the emerging markets
represented by China's (SSE), Brazil (BVSP), India (BSE), Russia (RTS) and
Indonesia (CSPI). The data used are weekly data on market indices and foreign
exchange rates against the U.S. dollar from January 2005 through December
2009. The analysis tools are Dynamic Condition Correlation (DCC-GARCH) to
calculate the correlation between equity markets, while to see the benefits of
international diversification use Simple Independent T-Test to see the average
value of Reward to Variability Ratio between the markets of developed markets
with emerging markets either during the period of bullish and bearish period.
The results showed that an increase in the correlation between the developed
markets and emerging markets in bearish periods (when the subprime mortgage
crisis). For international diversification benefit obtained by developed markets
larger than the emerging markets, both in periods of bullish and bearish.
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