Benefits of international diversification with investment constraints: An over-time perspective

Wan-Jiun Paul Chiou

Journal of Multinational Financial Management, 2009, vol. 19, issue 2, 93-110

Abstract: This paper investigates the benefits and asset allocation of the optimal international diversification for the U.S.A. investor while considering various portfolio constraints. Although the global financial market is becoming more integrated, the findings suggest that adding lower and upper weighting bounds reduces, but does not completely eliminate, the potential economic value of international investment. The addition of investment constraints makes asset allocation more feasible and decreases the volatility in portfolio return. The time-variation in the optimal asset allocation implies that fund managers should rebalance international portfolios dynamically. The out-of-sample test suggests that the Markowitz model with constraints realizes trivial improvement in mean-variance efficiency but still demonstrates significant reduction in risk.

Keywords: Diversification; benefits; Investment; constraints; International; portfolio; management (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042-444X(08)00042-X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:19:y:2009:i:2:p:93-110

Access Statistics for this article

Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth

More articles in Journal of Multinational Financial Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().