The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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The Interaction between Nonexpected Utility and Asymmetric Market Fundamentals
Published: 03/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb04433.x
MAO‐WEI HUNG
This paper studies a nonexpected utility, general equilibrium asset pricing model in which market fundamentals follow a bivariate Markov switching process. The results show that nonexpected utility is capable of exactly matching the means of the risk‐free rate and the risk premium. Asymmetric market fundamentals are capable of generating a negative sample correlation between the risk‐free rate and the risk premium. Moreover, an equilibrium asset pricing model endowed with asymmetric market fundamentals is consistent with all five first and second moments of the risk‐free rate and the risk premium in the U.S. data.
Can the Gains from International Diversification Be Achieved without Trading Abroad?
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00182
Vihang Errunza, Ked Hogan, Mao‐Wei Hung
We examine whether portfolios of domestically traded securities can mimic foreign indices so that investment in assets that trade only abroad is not necessary to exhaust the gains from international diversification. We use monthly data from 1976 to 1993 for seven developed and nine emerging markets. Return correlations, mean‐variance spanning, and Sharpe ratio test results provide strong evidence that gains beyond those attainable through home‐made diversification have become statistically and economically insignificant. Finally, we show that the incremental gains from international diversification beyond home‐made diversification portfolios have diminished over time in a way consistent with changes in investment barriers.