iShares and the US Market Risk Exposure |
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| Authors: | Chanwit Phengpis and Peggy E Swanson |
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| Institution: | The first author is from the Department of Finance, College of Business Administration, California State University, Long Beach. The second author is from the Department of Finance and Real Estate, College of Business Administration, University of Texas at Arlington. The authors appreciate helpful comments and suggestions by Peter F. Pope (editor) and an anonymous referee. |
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| Abstract: | Abstract: Previous researchers find that country iShares are directly and strongly exposed to US market risk in addition to home country market risk. This finding contradicts the fact that by design these iShares should behave as their underlying market indices behave. With monthly data and the appropriate orthogonalization choice, we find that direct US market risk exposure is weaker, less significant and less prevalent than previously suggested. Further tests indicate that in fact a strong majority of country iShares do not behave significantly differently from their underlying market indices. Hence, they are not less effective as diversification instruments to US investors than direct investments in the foreign markets as represented by their underlying market indices. |
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| Keywords: | iShares country iShares international diversification risk exposure |
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