ABSTRACT
The quest for above-average returns is the goal of today’s investors. In the past, foreign investments offered investors resourceful gains. However, the days of higher returns in foreign markets are disappearing due to financial globalization. Increasingly, foreign investments measure higher correlations to U.S. indices. Synchronized foreign markets resulted from the global reach of information, improved disclosure regulations, standardization of financial information, global trade, coordinated central bank policies, increased market efficiency, and massive global capital flows. The added frictional cost and risks of foreign investments have made the promise of foreign alpha even more difficult to achieve. The paper considers developed and emerging market investment returns and their lockstep response to U.S. equity markets. Frontier markets are not necessarily global participants as they play by different rules and are often isolated from global events. Cooperation among developed and emerging nations and increased liquidity and capital flows contribute to higher correlations in returns and disappearing alpha in foreign equities.
Keywords
Alpha Returns, investing, globalization