The objective of this paper is to examine the short and long term relationships between 22 financial markets in order to study their implication on the potential gains from international diversification during the period 1987 to 2004. We will make an empirical study based on cointegration, causality tests and error correction model. The results of bivariate tests show the existence of long term equilibrium relations between United States and some developed markets such as Belgium, United Kingdom and Sweden. The results of multivariate tests show that the increase of financial integration degree has not affected the expected benefits from international diversification in emerging markets. The gains remain significantly important for American investors in emerging equity markets.
Key words: International portfolio diversification, financial integration, bi-multivariate cointegra-tion, causality tests, vector error correction form (VECM).
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