Exploring the diversification benefits of US international equity closed-end funds

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Abstract

I use the simulation approach of Jobson and Korkie (J Portfolio Manag 7:70–74, 1981), combined with Michaud optimization (Michaud and Michaud, Efficient asset management: a practical guide to stock portfolio optimization and asset allocation, Oxford University Press, Oxford, 2008), to evaluate whether US international equity closed-end funds (CEF) provide out-of-sample diversification benefits. My study finds that international CEF do not provide diversification benefits across the whole sample period. However, the out-of-sample diversification benefits of international CEF do vary across economic states. I find that there are significant diversification benefits when the lagged one-month US Treasury Bill return is lower than normal, and when higher than normal, regardless of the benchmark investment universe used.

Original languageEnglish
Number of pages24
JournalFinancial Markets and Portfolio Management
Early online date29 Jun 2021
DOIs
Publication statusE-pub ahead of print - 29 Jun 2021

Keywords

  • diversification benefits
  • resampled portfolio efficiency
  • closed-end funds
  • US Treasury Bill

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