Abstract
We examine the benefits of international portfolio diversification for U.K. investors between January
1985 and December 2000 using the approach ofWang [Wang, Z., 1998. Efficiency loss and constraints
on portfolio holdings. Journal of Financial Economics 48, 359-375] and Li et al. [Li, K., Sarkar, A.,
Wang, Z., 2003. Diversification benefits of emerging markets subject to portfolio constraints. Journal
of Empirical Finance 10, 57-80]. We find significant increases in the Sharpe [Sharpe, W.F., 1966.
Mutual fund performance. Journal of Business 39, 119-138] and certainty equivalent return (CER)
performance in moving from a domestic strategy to an international strategy that includes either global
industry or country equity portfolios, even in the presence of short selling restrictions. We also find
significant diversification benefits using U.K. unit trusts with international equity objectives. However,
U.K. international unit trusts do not capture all the diversification benefits provided by either global
industry or country equity portfolios.
| Original language | English |
|---|---|
| Pages (from-to) | 455-468 |
| Number of pages | 13 |
| Journal | Journal of International Financial Markets Institutions and Money |
| Volume | 15 |
| Issue number | 5 |
| DOIs | |
| Publication status | Published - 8 Mar 2005 |
Keywords
- international diversification
- trusts
- mean-variance framework
- short selling