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Can the Gains from International Diversification Be Achieved without Trading Abroad?

Vihang Errunza, Ked Hogan and Mao-Wei Hung
The Journal of Finance
Vol. 54, No. 6 (Dec., 1999), pp. 2075-2107
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/797988
Page Count: 33
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Can the Gains from International Diversification Be Achieved without Trading Abroad?
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Abstract

We examine whether portfolios of domestically traded securities can mimic foreign indices so that investment in assets that trade only abroad is not necessary to exhaust the gains from international diversification. We use monthly data from 1976 to 1993 for seven developed and nine emerging markets. Return correlations, mean-variance spanning, and Sharpe ratio test results provide strong evidence that gains beyond those attainable through home-made diversification have become statistically and economically insignificant. Finally, we show that the incremental gains from international diversification beyond home-made diversification portfolios have diminished over time in a way consistent with changes in investment barriers.

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