Kushagra Jain

Abstract

This dissertation sheds new light on distinct risks in international portfolios. The first essay focuses on long-run risk in asset allocation and portfolio diversification. I examine the long-run interdependence between equity returns globally. Long-run correlations are assessed between developed, emerging and frontier markets. From the 1980s onwards, 39 equity markets are empirically investigated. I uncover robust evidence of greatly elevated long-run correlations in emerging and frontier markets. The associated long-run diversification benefits of said markets are found to be much lower than established earlier. The weights of the global minimum variance portfolio reflect this finding. These weights are starkly different in the long-run compared to the short-run. 

In the second essay, I undertake an analysis of common ownership changes. Contemporary research shows these have important links with several firm-level outcomes. Their relationship with the tail risk of firms is examined globally by exploiting global ownership data. I measure the extent to which a firm is commonly held with firms it shares ownership with globally, across all types of institutions. An average of pairwise institutional common ownership is deployed to do this. Changes in this variable are, all else equal, negatively related to future tail risk. Firms with decreases in this characteristic have higher one-year ahead tail risk globally. 

The third essay investigates two disparate common trading pressure mechanisms. These are the risk of commonly owned peer firms and crowding (a firm’s institutional ownership relative to its trading volume). These have recently been raised as risk concerns by academics, practitioners, and regulators. I examine their relations with firm risk using a comprehensive international dataset. I control for ownership, trading, returns and fundamentals data across the globe. The strength and direction of these relations is empirically quantified. Lagged global common owners peer risk is able to strongly determine a firm’s one-year ahead risk. Similarly, a firm’s future risk has a strong positive association with the crowding of its trades. This is over and above controls empirically verified as risk-capturing proxies.