Benefits from International Diversification: Across Time and Country Perspectives

Over the last 20 years, research has confirmed and reconfirmed the benefits of international diversification. [See Madura (1984) for a review of this research.] However, changes in international stock market and foreign exchange market behavior require that some issues be reassessed. First, how do potential gains from international diversification vary across perspectives? Most of the past research focused solely on a U.S. perspective. Solnik (1974) assessed various perspectives, but the period assessed was prior to the inception of floating exchange rates. Because of the high degree of integration of stock markets and the volatility of foreign exchange rales, a reassessment from various perspectives is necessary.