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Diversification Benefits of iShares and Closed‐End Country Funds
Author(s) -
Pennathur Anita K.,
Delcoure Natalya,
Anderson Dwight
Publication year - 2002
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/1475-6803.00036
Subject(s) - diversification (marketing strategy) , index fund , net asset value , business , closed end fund , economics , index (typography) , passive management , monetary economics , financial economics , fund of funds , finance , institutional investor , open end fund , corporate governance , market liquidity , marketing , world wide web , computer science
We study the performance and diversification of iShares and their rival closed‐end country funds from April 1996 to December 1999. International iShares are country‐specific series of securities that track the price and yield of a specific Morgan Stanley Capital Internation (MSCI) country index and, presumably, should provide diversification benefits. Our single‐index model demonstrates that iShares replicate the home index, showing some potential for diversification. However, our two‐factor model, which isolates the “true” diversification virtues, documents that both iShares and closed‐end country fund market prices maintain considerable exposure to the U.S. market. Furthermore, the net asset value returns of the closed‐end funds demonstrate a strong home country exposure, suggesting there is no substitute for direct foreign investment.