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Unexploited Gains From International Diversification: Patterns Of Portfolio Holdings Around The World

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  • Tatiana Didier

    (World Bank)

  • Roberto Rigobon

    (MIT and NBER)

  • Sergio L. Schmukler

    (World Bank)

Abstract

Using unique data on mutual fund portfolios with different investment scopes, we study the extent of international diversification. Mutual funds invest in a surprisingly limited number of stocks—about 100. The number of holdings from a given region declines as the investment scope broadens. Moreover, unexploited gains exist from international diversification. Funds that invest globally could achieve better risk-adjusted returns by adding stocks held by more specialized funds within the same family. These findings are not driven by different sectoral allocations, lack of information or instruments, transaction costs, or different tail risks. Instead, organizational factors might play an important role. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 5 (December)
Pages: 1562-1583

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Handle: RePEc:tpr:restat:v:95:y:2013:i:5:p:1562-1583

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Related research

Keywords: financial integration; firm organization; globalization; international asset allocation; mutual fund portfolios; risk diversification;

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Cited by:
  1. Raddatz, Claudio & Schmukler, Sergio L., 2012. "On the international transmission of shocks : micro-evidence from mutual fund portfolios," Policy Research Working Paper Series 6072, The World Bank.
  2. Didier, Tatiana & Schmukler, Sergio L., 2013. "The financing and growth of firms in China and India : evidence from capital markets," Policy Research Working Paper Series 6401, The World Bank.
  3. Didier, Tatiana & Schmukler, Sergio L., 2013. "Financial development in Latin America and the Caribbean : stylized facts and the road ahead," Policy Research Working Paper Series 6582, The World Bank.
  4. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2012. "U.S. international equity investment," International Finance Discussion Papers 1044, Board of Governors of the Federal Reserve System (U.S.).
  5. Bengui, Julien & Nguyen, Ha, 2011. "Consumption baskets and currency choice in international borrowing," Policy Research Working Paper Series 5870, The World Bank.
  6. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2012. "U.S. International Equity Investment," NBER Working Papers 17839, National Bureau of Economic Research, Inc.

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