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The performance of international portfolios

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Author Info
Charles P. Thomas
Francis E. Warnock
Jon Wongswan
Abstract

We evaluate the performance of U.S. investors' international portfolios over a 25-year period. Portfolio returns are formed by first estimating monthly bilateral holdings in 44 countries using high-quality but infrequent benchmark surveys that enable us to eliminate the geographical bias in reported capital flows data. In their foreign equity portfolios, U.S. investors achieved a significantly higher Sharpe ratio than global benchmarks, especially since 1990. We uncover three potential reasons for this success. First, they abstained from returns-chasing behavior and instead sold past winners. Second, conditional performance tests provide no evidence that the superior (unconditional) performance owed to private information, suggesting that the successful exploitation of publicly available information played a role. Third, well-documented preferences for cross-listed and well-governed foreign firms appear to have served U.S. investors well. We also evaluate the unconditional performance of bond portfolios, about which less information is available, and find that U.S. investors achieved higher Sharpe ratios than global benchmarks, although the difference here is not statistically significant.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 817.

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Date of creation: 2004
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Keywords: Investments Foreign

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gian Maria Milesi-Ferretti & Philip R. Lane, 2007. "Europe and Global Imbalances," IMF Working Papers 07/144, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Harald Hau & Helene Rey, 2008. "Global Portfolio Rebalancing Under the Microscope," NBER Working Papers 14165, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Fang Cai & Francis E. Warnock, 2006. "International Diversification at Home and Abroad," NBER Working Papers 12220, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Matthew Higgins & Thomas Klitgaard & Cedric Tille, 2005. "The income implications of rising U.S. international liabilities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Dec. [Downloadable!]
  5. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers 5644, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Charles P. Thomas, 2006. "The Performance of International Equity Portfolios," The Institute for International Integration Studies Discussion Paper Series iiisdp162, IIIS. [Downloadable!]
  7. Francis E. Warnock & Veronica C. Warnock, 2005. "International capital flows and U.S. interest rates," International Finance Discussion Papers 840, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  8. Gary Burtless, 2007. "International Investment for Retirement Savers: Historical Evidence on Risk and Returns," Working Papers, Center for Retirement Research at Boston College wp2007-05, Center for Retirement Research, revised Feb 2007. [Downloadable!]
  9. Cai, Fang & Warnock, Francis E., 2005. "International diversification at home and abroad," Discussion Paper Series 1: Economic Studies 2005,06, Deutsche Bundesbank, Research Centre. [Downloadable!]
  10. Rachel A. Campbell & Roman Kräussl, 2006. "Revisiting the Home Bias Puzzle. Downside Equity Risk," CFS Working Paper Series 2006/31, Center for Financial Studies. [Downloadable!]
    Other versions:
  11. Francis E. Warnock & Veronica C. Warnock, 2005. "International Capital Flows and U.S. Interest Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp103, IIIS. [Downloadable!]
  12. Gian Maria Milesi-Ferretti & Philip R. Lane, 2005. "A Global Perspective on External Positions," IMF Working Papers 05/161, International Monetary Fund. [Downloadable!]
    Other versions:
  13. Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2006. "The Performance of International Equity Portfolios," NBER Working Papers 12346, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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