Mehmet UmutluSeher Goren YargiAdam ZarembaYargi, Seher GorenZaremba, AdamUmutlu, Mehmet2025-10-0620230275-53191556-50681878-338410.1016/j.ribaf.2023.1019542-s2.0-85152138919http://dx.doi.org/10.1016/j.ribaf.2023.101954https://gcris.yasar.edu.tr/handle/123456789/7671https://doi.org/10.1016/j.ribaf.2023.101954We conjecture that partially segmented stock indexes that are characterized by low correlation with the world market are mainly priced by local factors and should produce abnormal returns relative to a global asset-pricing model. This implies a negative relation between correlation and future index returns in the presence of segmented indexes. Empirical evidence confirms such a relationship for the sample of industry indexes suggesting a heterogeneous segmentation. However we do not observe a similar pattern for country indexes. In addition the international diversification potential of industries does not vanish during volatile periods. The hypothesis that the negative relationship should be stronger for the more segmented subsamples that are char-acterized by small market size and emerging country origin is verified for the industry sample. Thus cross-industry diversification is superior to mere cross-country diversification.Englishinfo:eu-repo/semantics/closedAccessInternational portfolio diversification, Industry diversification, Country diversification, Partial segmentation and integration, Index return correlationsEXPECTED RETURNS, RISK, LIBERALIZATION, VOLATILITY, WORLD, TIME, EUROCountry DiversificationIndustry DiversificationInternational Portfolio DiversificationIndex Return CorrelationsPartial Segmentation and IntegrationArticle