Mehmet UmutluSeher Gören YargıAdam Zaremba2025-10-062023027553191556-506810.1016/j.ribaf.2023.101954https://www.scopus.com/inward/record.uri?eid=2-s2.0-85152138919&doi=10.1016%2Fj.ribaf.2023.101954&partnerID=40&md5=980e9a460eef9902e6956408bb5f906dhttps://gcris.yasar.edu.tr/handle/123456789/8465We 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 characterized 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. © 2023 Elsevier B.V. All rights reserved.EnglishCountry Diversification, Index Return Correlations, Industry Diversification, International Portfolio Diversification, Partial Segmentation And IntegrationArticle