Is the Potential for International Diversification Disappearing? A Dynamic Copula Approach

International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections. We nd that copula correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower for EMs than for DMs. Tail dependence has also increased but its level is still relatively low for EMs. We propose new measures of dynamic diversication benets that take into account higher order moments and nonlinear dependence. The benets from international diversication have reduced over time, drastically so for DMs. EMs still oer signicant diversication benets, especially during large market downturns.