Global Versus Regional Systematic Risk and International Asset Allocations in Asia

Priscilla Swartz

This study decomposes total risk of a MSCI Asian country index returns into three components: world systematic risk, Asian regional systematic risk and country-specific risk. The study finds an Asian country index returns mostly respond to shocks originated within the country. China, Korea and Taiwan index returns are increasingly sensitive to global common shocks notably after the Asian financial crisis, while Japan and India indices are more responsive to regional shocks. These findings have important implications in optimally allocating funds within a global versus a regional portfolio. 

Key Words: Systematic risk; Asset allocation; Portfolio management.
JEL Classification Numbers: G11, G12, G15, G20.