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Exploring the diversification benefits of US international equity closed-end funds

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  • Jonathan Fletcher

    (University of Strathclyde)

Abstract

I use the simulation approach of Jobson and Korkie (J Portfolio Manag 7:70–74, 1981), combined with Michaud optimization (Michaud and Michaud, Efficient asset management: a practical guide to stock portfolio optimization and asset allocation, Oxford University Press, Oxford, 2008), to evaluate whether US international equity closed-end funds (CEF) provide out-of-sample diversification benefits. My study finds that international CEF do not provide diversification benefits across the whole sample period. However, the out-of-sample diversification benefits of international CEF do vary across economic states. I find that there are significant diversification benefits when the lagged one-month US Treasury Bill return is lower than normal, and when higher than normal, regardless of the benchmark investment universe used.

Suggested Citation

  • Jonathan Fletcher, 2022. "Exploring the diversification benefits of US international equity closed-end funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(3), pages 297-320, September.
    • Handle: RePEc:kap:fmktpm:v:36:y:2022:i:3:d:10.1007_s11408-021-00397-1
    DOI: 10.1007/s11408-021-00397-1
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    More about this item

    Keywords

    Diversification benefits; Resampled portfolio efficiency™; Closed-end funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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