Table of Contents
Executive Summary .................................................................3
Key Implications..........................................................................................................3
The Perennial debate ...............................................................5
Why does it matter? .....................................................................................................5
Previous Academic Research.......................................................................................5
Previous J.P. Morgan Quant Analysis .........................................................................6
Recent Developments ..................................................................................................6
Review of the methodology .........................................................................................7
Single Stock Example ..................................................................................................7
Considered Universes ..................................................................................................8
Universe 1: Global Emerging Markets Results ......................9
Correlation trends through time ...................................................................................9
Drilling down into countries and sectors ...................................................................10
How has the universe changed? .................................................................................10
GEM Country by country ..........................................................................................11
The Sector view.........................................................................................................15
Universe 2: Asia Pacific x Japan Results.............................19
Correlation trends through time .................................................................................19
Drilling down into countries and sectors ...................................................................20
How has the universe changed? .................................................................................20
APxJ Country by country...........................................................................................21
The Sector view.........................................................................................................24
Universe 3: Western Europe..................................................27
Correlation trends through time .................................................................................27
Drilling down into countries and sectors ...................................................................28
How has the universe changed? .................................................................................28
Europe Country by country........................................................................................28
The Sector view.........................................................................................................31
Is this structural or temporary? ............................................35
Confirming the results – Alternative Approaches ...............38
Pairwise Correlation Approach..................................................................................38
‘Build Your Own Index’ Approach ...........................................................................40
Regression Approach.................................................................................................41
Conclusions & Implications for managers...........................42