From domestic to global asset pricing

Global asset pricing has interesting implications for investors and firms

The only free lunch in all economics is portfolio diversification. We reduce risk when a portfolio goes from one firm to multiple firms within an industry. We reduce risk by holding assets in multiple industries. And finally, we get a good dollop of risk reduction by holding assets in multiple countries. The safest equity portfolio is one spread across a dozen mature liberal democracies.
 

The correlation between the Nifty and S&P 500
 

In the graph, we have juxtaposed the level of the S&P 500 and the Nifty over the last five years. It is remarkable how much they move together.