Twenty Years of International Diversification from a German Perspective
AbstractWe examine the potential benefits of international portfolio diversification over the last two decades from an ex-post and ex-ante German investor’s perspective. We explicitly consider the effect of a German home bias. Our analysis shows that international diversification is highly desirable, but practical implementation of unrestricted historically based portfolio weightings is limited due to selectivity risk. The results of ex-post rolling-window analyses show that a home bias of 20% up to 40% is a suitable domestic equity investment range for German investors, who currently implement this percentage. We also find that the ex-post minimum variance portfolios perform well in an out-of-sample analysis. They outperform the benchmark indexes and a sole domestic investment.
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Bibliographic InfoArticle provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 57 (2005)
Issue (Month): 2 (April)
Asset Allocation; Home Bias; International Diversification; Minimum Vari-ance; Portfolio Theory.;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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