Geographic Versus Industry Diversification: Contraints Matter

Paul Ehling and Sofia Ramos

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: This research addresses whether geographic diversification provides benefits over industry diversification in a sample of European country and industry indexes. The methodology allows performance comparisons with short-selling constraints, upper and lower bounds, and many benchmarks. In the absence of constraints, no empirical evidence is found to support the argument that country diversification is a superior approach. In the case of realistic weights on portfolios such as short-selling, and lower or upper bonds, geographic diversification performs (sig-nificantly) better. The contrary results appear to be attributable to the fact that industry portfolios are better suited to eliminate the single dominant factor risk in stock returns. Further out-of-sample analysis shows that geographic diversification performs better, although the tests do not show statistical significance.

Keywords: Diversification gains; EMU; Geographic diversification; Industry diversification (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2004-08
New Economics Papers: this item is included in nep-fin, nep-geo, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.swissfinanceinstitute.ch/rp113.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.swissfinanceinstitute.ch/rp113.pdf [301 Moved Permanently]--> https://www.sfi.ch/rp113.pdf [302 Found]--> https://www.sfi.ch/en/rp113.pdf)

Related works:
Journal Article: Geographic versus industry diversification: Constraints matter (2006)
Working Paper: Geographic versus industry diversification: constraints matter (2005)
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:fam:rpseri:rp113

Access Statistics for this paper

More papers in FAME Research Paper Series from International Center for Financial Asset Management and Engineering Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().