Appendix to Time-Varying Integration and International Diversification Strategies

This appendix to Time-Varying Integration and International Diversification Strategies contains additional information on how the data used in this paper is compiled/constructed, on how the optimal structural regime-switching volatility spillover models are selected, and on the derivation of the theoretical biases in idiosyncratic volatility. The first section describes in detail how we constructed our data. We discuss respectively the stock returns used, as well as how we constructed the two structural instruments, i.e. the trade integration and industry (country) structure alignment measures. It further provides some detailed summary statistics. Section II presents and discusses detailed model selection tests for the various spillover models. Section III presents the results of the model selection tests, and shows how we selected the 'optimal' model. Finally, Section IV provides derivations of the theoretical biases in idiosyncratic volatility