Today I learned something relevant for Bogleheads IMO as this tidbit was mentioned in a recent Rational Reminder podcast.
Many of us know that global stock correlations have increased in recent decades. A naive conclusion would be that global diversification provides less benefit than in the past.
However there is useful research by Viceira and Wang (2018) uncovering interesting details: correlation has increased because of "discount rate shock" correlation - an unexpected global change in the rate at which future earnings or consumption are discounted back to their present value. This is a *preference* and is *temporary.* There is no evidence of an increase in the cross-country correlations of equity cash flow news or stock market volatility shocks, which is what a long-term investor would care about.
"Our analysis of the optimal intertemporal global equity portfolio allocations and expected utility implied by our news estimates shows that the increase in the cross-country correlations of stock returns has not led to reduction in the benefits of global equity portfolio diversification at long horizons. Because the increase in return correlations results from correlated discount rate news, long-horizon investors still find that holding global equity portfolios helps diversify cash flow risk"
As far as I know this research has not been contradicted since.
[https://www.nber.org/system/files/working\_papers/w24646/w24646.pdf](https://www.nber.org/system/files/working_papers/w24646/w24646.pdf)