Sources of Gains from International Portfolio Diversification PDF Download

Author: José Campa
Publisher:
ISBN:
Category : Investments, Foreign
Languages : en
Pages : 39

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Author: Nuno Fernandes
Publisher:
ISBN:
Category :
Languages : en
Pages : 46

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This paper looks at the determinants of country and industry specific factors in international portfolio returns using a sample of forty eight countries and thirty nine industries over the last three decades. Country factors have remained relatively stable over the sample period while industry factors have significantly increased during the last decade and dropped again since 2000. The importance of industry and country factors is correlated with measures of economic and financial international integration and development. We find that financial market globalization is the main driving force behind the changes in relative magnitude of the different shocks. Country factors are smaller for countries integrated in world financial markets and have declined as the degree of financial integration and the number of countries pursuing financial liberalizations has increased. Higher international financial integration within an industry increases the importance of industry factors in explaining returns. Economic integration of production also helps in explaining returns. Countries with a more specialized production activity have higher country shocks.

Author: Ludger Hentschel
Publisher:
ISBN:
Category :
Languages : en
Pages : 38

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We measure the size and sources of gains from international diversification using metrics that are independent of currency choices. When we apply these measures to industry sector portfolios for six large equity markets, we find that, offered costless access to a foreign market, investors would construct portfolios with substantial leverage to obtain large certainty-equivalent wealth gains from that market access. At the same time, modest proportional transaction costs would eliminate all of these gains by inducing investors to voluntarily forego positions in foreign assets. Using the same measures, we find that emerging market equity indices offer fewer gains from diversification than assets from developed markets.

Author: Isabel C. Andrade
Publisher:
ISBN:
Category :
Languages : en
Pages : 17

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Author: Shaun Miskell
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages :

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Author: Riad Cheikh El Ghanama
Publisher:
ISBN: 9783659241987
Category :
Languages : en
Pages : 0

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Author: Robert R. Grauer
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 24

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Author: Cheol S. Eun
Publisher:
ISBN:
Category :
Languages : en
Pages : 132

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Author: Tatiana Didier
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 0

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Abstract: This paper studies how portfolios with a global investment scope are actually allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly limited number of stocks, around 100. The number of holdings in stocks and countries from a given region declines as the investment scope of funds broadens. This restrictive investment practice has costs. A mean-variance strategy shows unexploited gains from further international diversification. Mutual funds investing globally could achieve better risk-adjusted returns by broadening their asset allocation, including stocks held by more specialized funds within the same mutual fund family (company). This investment pattern is not explained by lack of information or instruments, transaction costs, or a better ability of global funds to minimize negative outcomes. Instead, industry practices related to organizational factors seem to play an important role

Author: Patrick F. Rowland
Publisher:
ISBN:
Category :
Languages : en
Pages : 61

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One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.