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Page 8 of 8
References
Bekaert, Geert, and Campbell R. Harvey, 2000. Foreign Speculators and Emerging Equity Markets. Journal of Finance 55:565-614.
Davis, Joseph H., and Roger Aliaga-Díaz, 2008. Oil, the Economy, and the Stock Market. Valley Forge, Pa.: Investment Counseling & Research, The Vanguard Group.
Forbes, Kristin J., and Menzie D. Chinn, 2003. A Decomposition of Global Linkages in Financial Markets over Time. Cambridge, Mass.: NBER Working Paper No. 9555.
Helbling, Thomas, Peter Berezin, M. Ayhan Kose, Michael Kumhof, Doug Laxton, and Nikola Spatafora, 2007. Decoupling the Train? Spillovers and Cycles in the Global Economy. In World Economic Outlook Chapter 4.
Kose, M. Ayhan, Christopher Otrok, and Eswar S. Prasad, 2008. Global Business Cycles: Convergence or Decoupling? IMF working paper 8/143.
Kose, M. Ayhan, Christopher Otrok, and Charles H. Whiteman, 2008. Understanding the Evolution of World Business Cycles. Journal of International Economics, 75(1): 110-30.
LaBarge, Karin Peterson, 2008. Diversification by Country and Global Sector: Considerations for Portfolio Construction. Valley Forge, Pa.: Investment Counseling & Research, The Vanguard Group.
Philips, Christopher B., 2008. International Equity: Considerations and Recommendations. Valley Forge, Pa.: Investment Counseling & Research, The Vanguard Group.
Stock, James H., and Mark W. Watson, 2005. Understanding Changes in International Business Cycles. Journal of the European Economic Association 3(5): 968-1006.
Tokat, Yesim, 2006. International Equity Investing: Investing in Emerging Markets. Valley Forge, Pa.: Investment Counseling & Research, The Vanguard Group
Wallick, Daniel, Roger Aliaga-Díaz, and Joseph H. Davis, forthcoming. Explaining the Vanguard Capital Markets Model. Valley Forge, Pa.: Investment Counseling & Research, The Vanguard Group.
Notes On Risk
Investments are subject to risk. Foreign investing involves additional risks including currency fluctuations and political uncertainty. Stocks of companies in emerging markets are generally more risky than stocks of companies in developed countries.
Diversification does not ensure a profit or protect against a loss in a declining market.
Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Acknowledgments
We would like to thank Lindsay Fay and Julieann Shanahan for excellent research assistance.
Contributing Authors
John Ameriks, Ph.D./Principal; Francis M. Kinniry Jr., CFA/Principal; Donald G. Bennyhoff, CFA; Geetesh Bhardwaj, Ph.D.; Maria A. Bruno, CFP®; C. William Cole; Scott J. Donaldson, CFA, CFP®; Michael Hess; Julian Jackson; Colleen M. Jaconetti, CPA, CFP®; Karin Peterson LaBarge, Ph.D., CFP®; Christopher B. Philips, CFA; Liqian Ren, Ph.D.; Kimberly A. Stockton; David J. Walker, CFA; Yan Zilbering
Endnotes
1. These values represent the percentage of the fluctuations in annual real GDP per capita growth rates that are common across four economic regions (developed North America, developed Europe, developed Asia, and emerging markets) as derived from a dynamic factor model.
2. See, for instance, recent Vanguard research papers by Philips (2008), Labarge (2008), and Tokat (2006).
3. See the sidebar on page 11 for a deeper discussion of the relationship between commodity prices and emerging markets.
4. The VCMM simulates returns and volatilities for a wide array of asset classes by implementing regression-based Monte Carlo methods. Asset returns are modeled and then simulated based on their relationship to valuation, economic, fixed income, and global risk factors. For each asset class, the VCMM creates 10,000 possible paths for these risk factors, then computes the implied asset returns and volatilities. For further details on the VCMM, see Wallick, Aliaga-Díaz, and Davis (2008).
5. See Davis and Aliaga-Díaz (2008) for more details on the Baltic Dry Cargo Index and the influence of global demand and other factors on oil prices.
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