Unexploited Gains from International Diversification: Patterns of Portfolio Holdings Around the World

Tatiana Didier (), Roberto Rigobon and Sergio Schmukler

No 16629, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies how portfolios with a global investment scope are actually allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly limited number of stocks, around 100. The number of holdings in stocks and countries from a given region declines as the investment scope of funds broadens. This restrictive investment practice has costs. A mean-variance strategy shows unexploited gains from further international diversification. Mutual funds investing globally could achieve better risk-adjusted returns by broadening their asset allocation, including stocks held by more specialized funds within the same mutual fund family (company). This investment pattern is not explained by lack of information or instruments, transaction costs, or a better ability of global funds to minimize negative outcomes. Instead, industry practices related to organizational factors seem to play an important role.

JEL-codes: F30 F36 G11 G15 L20 (search for similar items in EconPapers)
Date: 2010-12
Note: IFM
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Citations: View citations in EconPapers (10)

Published as Tatiana Didier & Roberto Rigobon & Sergio L. Schmukler, 2013. "Unexploited Gains From International Diversification: Patterns Of Portfolio Holdings Around The World," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1562-1583, December.

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Journal Article: Unexploited Gains From International Diversification: Patterns Of Portfolio Holdings Around The World (2013)
Working Paper: Unexploited gains from international diversification: patterns of portfolio holdings around the world (2011)
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