We develop a global equilibrium asset pricing model assuming that investors suffer from foreign aversion, a preference for home assets based on familiarity. Using a utility formulation inspired by regret theory, we derive closed-form solutions. When the degree of foreign aversion is high in a...

Global asset allocation provides risk diversification. But international market correlation increases sharply during global crises and diversification benefit disappears when it is most needed. We model these correlation breaks and derive the asset allocation implications. The model can quickly...

We propose a new approach to identify drivers of global market integration using an advanced machine learning technique. We differentiate across economic and financial integration as well as across emerging and developed countries. Our approach allows for nonlinear relationships, corrects for...

Global equity management has historically been structured around country asset allocation. This approach was supported by the observations that the country factor is the major source of influence on stock-price behavior and that the correlation between equity and currency is close to zero and...

We propose a simple metric to measure two aspects of market integration, namely economic integration (defined as a common cash flow dynamic) and financial integration (defined as a common risk pricing dynamic) and then examine their evolution through time while controlling for volatility. We...

This paper characterizes the forces that determine time-variation in expected international asset returns. We offer a number of innovations. By using the latent factor technique, we do not have to prespecify the sources of risk. We solve for the latent premiums and characterize their...

We develop a global equilibrium asset pricing model assuming that investors suffer from foreign aversion, a preference for home assets based on familiarity. Using a utility formulation inspired by regret theory, we derive closed-form solutions. When the degree of foreign aversion is high in a...