Purpose – The main purpose of this paper is to investigate whether Chinese investors can benefit from international diversification and where these benefits are to be found. Design/methodology/approach – This paper applies an expanding optimization procedure, which is different from the...

This paper investigates the impact of background risk on an investor's portfolio choice in a mean-variance framework, and analyzes the properties of efficient portfolios as well as the investor's hedging behaviour in the presence of background risk. Our model implies that the efficient portfolio...