Location of trade, return comovements, and diversification benefits: Evidence from Asian country ETFs

•This paper explores impact of the trading location on price behavior.•The trading location affects return comovements.•Factors of the U.S. market in determining return comovements are presented.•The trading location affects diversification benefits.

Using data from the Asian country ETFs and their MSCI indices, this paper examines whether trading location affects return comovements and diversification benefits. Our empirical results show that the magnitude of return comovements for the Asian country ETFs is higher than the corresponding MSCI indices. Moreover, our empirical findings indicate that the factors, including investor sentiment, market conditions, and economic fundamentals of the U.S. market, have greater effects on the return comovements for the Asian country ETFs than their underlying MSCI indices. Finally, the evidence presents a higher diversification benefit for the Asian MSCI indices than the Asian country ETFs.