Multinationals and the Gains from International Diversification

Patrick F. Rowland and Linda Tesar ()

No 6733, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.

JEL-codes: F23 G11 (search for similar items in EconPapers)
Date: 1998-09
New Economics Papers: this item is included in nep-cfn and nep-ifn
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Rowland, Patrick F. and Linda L. Tesar. "Multinationals And The Gains From International Diversification," Review of Economic Dynamics, 2004, v7(4,Oct), 789-826.

Downloads: (external link)
http://www.nber.org/papers/w6733.pdf (application/pdf)

Related works:
Journal Article: Multinationals and the Gains from International Diversification (2004)
Working Paper: Multinationals and the Gains from International Diversification (1998)
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:nbr:nberwo:6733

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6733

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().