An empirical examination of the diversification benefits of U.K. international equity closed-end funds

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Abstract

I use the Bayesian approach of Wang (1998) to examine the diversification benefits of international equity U.K. closed-end funds (CEF) in the presence of market frictions. No short selling constraints substantially reduce, and in some cases eliminate the diversification benefits of CEF. However, adjusting for higher trading costs in the benchmark assets, the diversification benefits of the funds are significant. The paper also finds that when comparing to the international equity exchange-traded funds (ETF), that both groups of funds are necessary to maximize the benefits of international diversification.
Original languageEnglish
Pages (from-to)23-34
Number of pages12
JournalInternational Review of Financial Analysis
Volume55
Early online date28 Oct 2017
DOIs
Publication statusPublished - 30 Jan 2018

Keywords

  • diversification benefits
  • Bayesian analysis
  • closed-end funds

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