The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
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Andreas Neuhierl, Washington University St.Louis
International Investing: Diversification and Beyond
with Soohun Kim (Georgia Tech) and Robert Korajczyk (Northwestern University)
We propose a novel two-country factor-pricing framework that leverages firm characteristics to extract both common and country-specific risk exposures and detect cross-border disparities in compensation. Implemented via Projected-PCA and Canonical Correlation Analysis, our method is validated on simulated factor economies and a large panel of international stock returns spanning 27 developed and developing markets. We document substantial temporal deviations in pricing for shared risks and widespread mispricing opportunities—even among G7 countries. Finally, we show that targeted portfolio strategies—tilted toward identified country-specific factors or designed to hedge and capture common-factor premium gaps—deliver robust, statistically significant profits and markedly improve diversification. Our results challenge the notion of fully integrated global equity markets and offer actionable portfolio strategies for international investors.
