Unexploited gains from international diversification: patterns of portfolio holdings around the world

Tatiana Didier (), Roberto Rigobon and Sergio Schmukler

No 5524, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies how portfolios with a global investment scope are 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.

Keywords: Mutual Funds; Debt Markets; Emerging Markets; Rural Development Knowledge&Information Systems; Access to Finance (search for similar items in EconPapers)
Date: 2011-01-01
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (8)

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Related works:
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 (2010)
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