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The international diversification benefits of U.S.‐traded equity products
Author(s) -
O'HaganLuff Martha,
Berrill Jenny
Publication year - 2019
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1714
Subject(s) - diversification (marketing strategy) , multinational corporation , equity (law) , sharpe ratio , home market , business , equity risk , private equity fund , economics , monetary economics , private equity , financial economics , international economics , portfolio , finance , market economy , marketing , political science , law
Abstract The benefits of international diversification for equity investors have been highlighted for decades. Despite the reduction of many previous barriers to foreign investment, investors are found to persistently overweight domestic equities. This paper examines whether the benefits of international diversification are available via U.S.‐traded equity products over a 15‐year period between 1996 and 2011. The equity products investigated are multinational corporations (MNCs), American depository receipts (ADRs), single‐country exchange‐traded funds, iShares, and closed‐end country funds. Mean‐variance spanning tests and Sharpe ratio analysis reveal that portfolios of ADRs and MNCs offer the greatest international diversification benefits to U.S. investors in a domestic setting. Whereas the benefits of international diversification vary during periods of differing market conditions, the findings for ADRs and MNCs remain robust. We conclude that it is possible to reap the benefits of international diversification via U.S.‐traded equity products but that the benefits of different equity types vary significantly.