Background: Investing internationally is easier than ever before, with the rise of the internet, unification of accounting standards, and faster flow of information. Yet, many argue that due to increasing global equity market correlations, it is getting increasingly hard to attain benefits from international diversification. Therefore, it is important to know if there are any benefits attainable from international diversification for Swedish investors. Purpose: The purpose of this thesis is to investigate if there are any benefits achievable from international diversification for Swedish investors, if those benefits have changed from before and after the financial crisis in 2007/2008, as well as where Swedish investors might attain the greatest benefits from diversification; namely in developed- or emerging markets. Method: Correlations are measured over the time periods before and after the financial crisis, using both a 61-month correlation window (the entire periods) as well as a 12-month rolling correlation window.  To test diversification benefits, different portfolios are created using the Markowitz Portfolio Optimizer, such as a Maximum Sharpe portfolio and an Equal Weighted portfolio. Conclusion: Correlations have increased from before and after the financial crisis, both for developed- and emerging markets. Diversification benefits exist for Swedish investors, but they have decreased from before and after the financial crisis, and they appear slightly greater in emerging markets than in developed markets.

<p>Investors in the financial market are supposed to hold diversified portfolios to minimize their risk adjusted for expected return. However, several researchers have pointed out that most investors are over weighted in their home market. This means that most diversification happens in terms of choosing stocks in the home market which means that further possible diversification through international diversification is unused. One can therefore expect that foreign investors have preferences for securities with specific characteristics once they go abroad. An earlier study of the Swedish stock market over the years 1993-1997 has shown that foreign investors, in greater extent than domestic investors, have a preference for large firms, firms paying low dividend and firms with low leverage. With the steep up-turn of the Swedish stock market before the millennium and the down-turn in year 2000 in mind, this study examine whether the investment patterns between 1996 and 2005 are consistent with the results of earlier investigations. In general the results are consistent with earlier investigations. However, this study also shows that foreign investors seem to be more interested in choosing securities with relatively high fundamental value and lower level of leverage during market down-turns.</p>

<p>This paper uses a new measure of volatility based on extreme day return occurrences and examines the relative prevailing volatility among worldwide stock markets during 1997-2009. Using several global stock market indexes of countries categorized as an emerging and developed capital markets are utilized. Additionally this study investigates well known anomalies namely Monday effect and January effect. Further using correlation analysis of co movement and extent of integration highlights the opportunities for international diversification among those markets. Evidences during this time period suggest volatility is not the only phenomena of emerging capital markets. Emerging markets offer opportunities of higher returns during volatility. Cross correlation analysis depicts markets have become more integrated during this time frame; still opportunities for higher returns prevail through global portfolio diversification.</p>

This thesis is composed of three chapters. The first two chapters provides novel approaches for modeling and estimating the dependence structure for a large portfolio of assets using rating data. In both chapters a natural form of organizing a portfolio in terms of the levels of exposure to economic sectors and geographical regions, plays a key role in setting up the dependence structure. The last chapter investigates weather financial strategies that exploit sector or geographical heterogeneity in the asset space are relevant in terms of portfolio optimization. This is also done in a context of a large portfolio but with data on stock returns.

Investors in the financial market are supposed to hold diversified portfolios to minimize their risk adjusted for expected return. However, several researchers have pointed out that most investors are over weighted in their home market. This means that most diversification happens in terms of choosing stocks in the home market which means that further possible diversification through international diversification is unused. One can therefore expect that foreign investors have preferences for securities with specific characteristics once they go abroad. An earlier study of the Swedish stock market over the years 1993-1997 has shown that foreign investors, in greater extent than domestic investors, have a preference for large firms, firms paying low dividend and firms with low leverage. With the steep up-turn of the Swedish stock market before the millennium and the down-turn in year 2000 in mind, this study examine whether the investment patterns between 1996 and 2005 are consistent with the results of earlier investigations. In general the results are consistent with earlier investigations. However, this study also shows that foreign investors seem to be more interested in choosing securities with relatively high fundamental value and lower level of leverage during market down-turns.

This paper uses a new measure of volatility based on extreme day return occurrences and examines the relative prevailing volatility among worldwide stock markets during 1997-2009. Using several global stock market indexes of countries categorized as an emerging and developed capital markets are utilized. Additionally this study investigates well known anomalies namely Monday effect and January effect. Further using correlation analysis of co movement and extent of integration highlights the opportunities for international diversification among those markets. Evidences during this time period suggest volatility is not the only phenomena of emerging capital markets. Emerging markets offer opportunities of higher returns during volatility. Cross correlation analysis depicts markets have become more integrated during this time frame; still opportunities for higher returns prevail through global portfolio diversification.

In recent years, diversification has become a common strategy used by companies in emerging markets. It is believed that diversification operations could help firms get better performance and gain higher profits from a larger internal market. However, contradictory results reveal that diversification empirically hurts firm value and other studies show the relationship between diversification and firm performance is complicated that should be studied in separate industries. The opinion is inconclusive on this topic. This study developed a performance index to see how diversification impact on various perspectives of firm performance. Conclusions as follow. International diversification has a positive correlation with firm performance in several aspects whereas industrial diversification helps firms’ developing ability. However, due to the unavailability of long-term data, we can not rule out the possibility that well-performed firms go for international diversification. Besides, The relationship between diversification and firm performance affected by different industries. The agricultural and natural resource firms tend to exceed manufacturing firms in the efficiency aspects whereas manufacturing companies tend to have advantages in the sustainability aspect compared to service firms. There is also evidence showing that the largest shareholders’ holdings rates have a positive impact on firm performance and state-owned rate has a negative relation with firm performance.

Prior research shows that family firms are generally less likely to diversify, but it remains unclear which mode of diversification in terms of internal versus external diversification family firms are more likely to choose once they decide to diversify. Similarly, it is unclear which type of diversification in terms of product versus international diversification family firms are more likely to focus on in comparison to nonfamily firms. Based on insights drawn from the goals, governance, and resources framework, this dissertation investigates the modes/types of diversification in family and nonfamily firms, as well as among various types of family firms. Specifically, I propose that family firms will prefer internal to external diversification to a larger extent than nonfamily firms. I further propose the strength of preference for internal to external diversification is likely to vary among different types of family firms manifested in the level of family ownership, family participation in the top management team and board, and generation of family members owning and controlling the family firm. Likewise, I theorize that family firms would prefer product to international diversification to a larger extent than nonfamily firms and that the strength of preference for product diversification is likely to vary among different types of family firms. A sample of 573 firms drawn from the S&P 1500 index was used toexamine the difference between family and nonfamily firms, and 136 family firms to test the heterogeneity hypotheses. No significant differences were found between family and nonfamily firms in their relative choice on internal over external diversification (Essay 1) and product over international diversification(Essay 2). Consistent with my prediction, I found family representation in the top management team has a significantly positive effect on a firm's tendency to engage in product rather than international diversification. However, in both Essay1 and Essay 2,I did not find significant effects of the other heterogeneous variables on a family firm's tendency to engage in one mode/type of diversification over the other. A rationale for these non-significant relationships is provided. Contributions and implications of this study are also discussed.

The literature on International Diversification suggests that investors and analysts value foreign earnings differently than domestic earnings. Prior studies also show an overall "valuation discount" for firms with foreign operations. To my knowledge, no study has empirically tested and found there to be differences in earnings quality for these firms. This study investigates differences in the quality of earnings for U.S. firms with foreign operations using a direct measure (discretionary accruals) and an indirect measure (investor perception of earnings). I also consider the impact of audit quality on each measure of earnings quality. In the first part of my dissertation I find firms with foreign operations report lower discretionary accruals than firms with only domestic operations. This indicates that auditors, similar to investors and analysts, report more conservatively for firms with foreign operations. My results show that audit quality further reduces the absolute value of reported accruals, and I find a higher level of reported "income decreasing" accruals for these firms. In the second section of my dissertation I consider the impact of audit quality on investor perception of earnings. Similar to earlier papers I find that foreign earnings changes are more highly associated with changes in firm value than domestic earnings changes, and this larger earnings response is attributed to negative changes in foreign earnings. I also find that audit quality improves investor perception of foreign earnings for firms with foreign operations. While there are ample studies demonstrating that firms with foreign operations are valued differently than firms with purely domestic operations, my study is the first to provide empirical evidence about how audit quality impacts financial reporting, the quality of earnings, and investor perception of earnings for firms with foreign operations. / Business Administration/Accounting

Is home biasness common among modern investors? To which extent do Swedish investors diversify their investments on an international level? Does home biasness negatively affect the investors performance? To answer these questions, correlation tests of various international indices ranging over four different time periods are conducted, in order to see if correlation between markets are stronger today than before, as stronger correlation would render diversification less useful. To enhance the study, the holdings of the top ten Swedish funds, measured in fund capital according to Morningstar, is reviewed, based on data collected per 2014-12-31 from the Swedish Financial Supervisory Agency (FI). This gives an overview of how the funds diversify their investments internationally, these funds will in turn represent the average Swedish investor in the thesis. By constructing a bullet curve from a set of international indices, the author will analyse to which grade international diversification is useful. The results are that international diversification isn’t as beneficial as theory suggests it is. The reason for it may be due to stronger correlation between international markets in the past 15 years. Most of the Swedish funds tends to be rather home biased in their investments, as about a quarter of the holdings usually are placed in Swedish assets, and in accordance with the results of the indices development, the more home biased they are to Sweden, the better they tend to perform. / Hur vanligt är egentligen home biasness hos den moderna investeraren? Till vilken grad diversifierar egentligen den vanliga Svenska investeraren sina tillgångar internationellt? Påverkar en eventuellt inhemskt investeringsfilosofi investeraren negativt? Korrelationstester för olika världsindex kommer utföras, så att en överskådade blick kan fås över hur världsmarknader rör sig allt mer symmetriskt, då starkare symmetri mellan marknader minskar nyttan av internationell diversifiering. Data om innehav från Sveriges topp tio fonder, sett till fondförmögenhet utifrån Morningstar, har samlats från finansinspektionen per 2014-12-31. Dessa fonder ska representera den typiske Svenska investeraren och dess diversifieringsvanor. Genom att ha samlat data från ett flertal internationella index har effektiv front samt en fiktiv kombination av index skapats för att få fram huruvida avkastning i relation till risk ökar genom internationell diversifiering. Denna kombination av index jämförs sedan mot utveckling av en handfull internationellt samlade index för att se om diversifiering förbättrar avkastningen i relation till risk. Resultatet säger att det index som är mest diversifierade inte är så gynnsamt som teorin påstår. Anledningen till detta kan bero på den ökade korrelationen bland aktiemarknader idag jämfört med för 15 år sedan. De flesta Svenska fonderna har en större andel av sitt innehav i Svenska värdepapper och överlag, förutom diverse undantag, så har det gynnat dessa fonder i avkastning sett till risk.