International Mutual Funds Stability and Benefits of Diversification
It is generally recognized that international portfolio diversification may generate substantial reduction in systematic risk. Previous studies assume stability of the systematic risk measure, beta, and hence assume the permanence of risk reduction generated from international diversification. In this paper, we employ four econometric techniques to investigate the intcr-temporal stability of benefits of systematic risk reduction realized through international diversification. Our findings indicator that market risk is not stable over time. The practical implication is that, contrary to the conclusions of many previous studies, the benefits of international diversification through systematic risk reduction are not ad infinitum attainable, given the dramatic variation in domestic and international market conditions. The theoretical implication is that instability of market risk would distort the construction of efficient frontier and the selection of international optimal portfolio.
Year of publication: |
1994
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Authors: | Essayyad, Musa ; Haddad, Mahmoud ; Benkato, Omar |
Published in: |
Economia Internazionale / International Economics. - Camera di Commercio di Genova. - Vol. 47.1994, 2-3, p. 139-159
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Publisher: |
Camera di Commercio di Genova |
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