International Portfolio Diversification for European countries: The viewpoint of Hungarian and German investors

Gyöngyi Bugàr (bugar@ktk.jpte.hu) and Raimond Maurer (investment@wiwi.uni-frankfurt.de)
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Gyöngyi Bugàr: Janus Pannonius University of Pécs, Faculty of Business and Economics, Postal: 7622 Pécs, Rákóczi út 80, Hungary

No 97-36, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: In this paper, we study the benefits derived from international diversification of stock portfolios from Hungarian as well as German point of view. The Hungarian Stock Exchange is an emerging market, in contrast to this the German capital market is one of the largest markets in the world. In an ex post perspective the benefits from internationally diversified portfolios for Hungarian investors accrue aonly in terms of reduction in risk while for German investors also in terms of higher expected returns. By examining the performance of several ex ante strategies the paper also presents evidence on the benefits from international diversification for both countries. The strategies considered are the equally weighted, the minimum variance, the tangency and an equal risk portfolio. Transaction costs as well as estimation risk are taken into cosideration.

Pages: 28 pages
Date: 1997-11-14
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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