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Foreign diversification has a long history in financial economics. In this paper, the authors reexamine this issue with foreign companies that are listed on US exchanges, combining features of three different literatures. One literature suggests that domestic portfolios including cross-listed stocks can duplicate the behavior of foreign market returns without the need for US investors to go abroad. A second literature finds that the returns from these foreign stocks often become more sensitive to the US market after cross-listing. Third, the emerging market on literature finds evidence that the relationships across stock markets shift after stock market liberalizations.
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