Assessing the impact of short-sale constraints on the gains from international diversification

Kai Li (), Asani Sarkar and Zhenyu Wang

No 89, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper examines the impact of short-sale constraints on the magnitude of international diversification benefit for U.S. investors during the period of 1976?1998. The diversification benefit is measured as the increase in expected return when switching from the U.S. equity index portfolio to the efficient international portfolio with equal variance. Although short-sale constraints reduce the diversification benefit, we find that the reduction caused by the constraints on emerging markets is small. This result holds in both pre- and post-liberalization periods. They are also unaffected by the fact that the U.S. index portfolio is not on the efficient frontier spanned by U.S. securities.

Keywords: diversification benefit; efficient international portfolio; equity index portfolio; diversification; investing (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Pages: 47 pages
Date: 1999-10-01
Note: For a published version of this report, see Asani Sarkar and Kai Li, "Should U.S. Investors Hold Foreign Stocks?" Current Issues in Economics and Finance 8, no. 3 (March 2002).
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr89.pdf (application/pdf)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr89.html (text/html)

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:fip:fednsr:89

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().