Sources of gains from international portfolio diversification

José Manuel Campa, Nuno Fernandes*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

54 Citations (Scopus)


This paper looks at the determinants of country and industry specific factors in international portfolio returns using a sample of forty eight countries and thirty nine industries over the last three decades. Country factors have remained relatively stable over the sample period while industry factors have significantly increased during the last decade and dropped again since 2000. The importance of industry and country factors is correlated with measures of economic and financial international integration and development. We find that financial market globalization is the main driving force behind the changes in relative magnitude of the different shocks. Country factors are smaller for countries integrated in world financial markets and have declined as the degree of financial integration and the number of countries pursuing financial liberalization has increased. Higher international financial integration within an industry increases the importance of industry factors in explaining returns. Economic integration of production also helps in explaining returns. Countries with a more specialized production activity have higher country shocks.
Original languageEnglish
Pages (from-to)417-443
Number of pages27
JournalJournal of Empirical Finance
Issue number4-5
Publication statusPublished - Oct 2006


  • ADR
  • Country/industry effects
  • Cross-listings
  • Financial integration
  • Global linkages
  • International diversification


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