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The Performance of International Equity Portfolios

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  • Charles P. Thomas
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    Abstract

    This paper evaluates the ability of U.S. investors to allocate their foreign equity portfolios across 44 countries over a 25-year period. We find that U.S. portfolios achieved a significantly higher Sharpe ratio than foreign benchmarks, especially since 1990. We test whether this strong performance owed to trading expertise or longer-term allocation expertise. The evidence is overwhelmingly against trading expertise. While U.S. investors did abstain from momentum trading and instead sold past winners, we find no evidence that these past winners subsequently underperformed. In addition, conditional performance measures, which directly test reallocating into (out of) markets that subsequently outperformed (underperformed), suggest no significant trading expertise. In contrast, we offer strong evidence of longer-term allocation expertise: If we fix portfolio weights at the end of 1989 and do not allow reallocations, we still find superior performance in the recent period.

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    Bibliographic Info

    Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp162.

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    Date of creation: 02 Aug 2006
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    Handle: RePEc:iis:dispap:iiisdp162

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    Keywords: momentum; contrarian; conditional performance measures; equities; home bias;

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    Citations

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    Cited by:
    1. Joshua Hausman & Jon Wongswan, 2006. "Global asset prices and FOMC announcements," International Finance Discussion Papers 886, Board of Governors of the Federal Reserve System (U.S.).
    2. Bong-Chan Kho & René M. Stulz & Francis E. Warnock, 2006. "Financial Globalization, Governance, and the Evolution of the Home Bias," NBER Working Papers 12389, National Bureau of Economic Research, Inc.
    3. Ravi Balakrishnan & Volodymyr Tulin & Tamim Bayoumi, 2007. "Globalization, Gluts, innovation or Irrationality," IMF Working Papers 07/160, International Monetary Fund.
    4. Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, 2009. "Decomposing the U.S. External Returns Differential," NBER Working Papers 15077, National Bureau of Economic Research, Inc.
    5. Stephanie Curcuru & Tomas Dvorak & Francis E. Warnock, 2009. "Decomposing the U.S. external returns differential," International Finance Discussion Papers 977, Board of Governors of the Federal Reserve System (U.S.).
    6. Jon Wongswan, 2005. "The response of global equity indexes to U.S. monetary policy announcements," International Finance Discussion Papers 844, Board of Governors of the Federal Reserve System (U.S.).
    7. Edison, Hali J. & Warnock, Francis E., 2008. "Cross-border listings, capital controls, and equity flows to emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 1013-1027, October.
    8. Calderon, Cesar & Kubota, Megumi, 2011. "Sudden stops : are global and local investors alike ?," Policy Research Working Paper Series 5569, The World Bank.
    9. Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, 2007. "The Stability of Large External Imbalances: The Role of Returns Differentials," NBER Working Papers 13074, National Bureau of Economic Research, Inc.
    10. Christian Thimann, 2008. "Global Roles of Currencies," International Finance, Wiley Blackwell, vol. 11(3), pages 211-245, December.
    11. Ravi Balakrishnan & Volodymyr Tulin, 2006. "U.S. Dollar Risk Premiums and Capital Flows," IMF Working Papers 06/160, International Monetary Fund.
    12. Stephanie E. Curcuru & Tomas Dvorak & Francis Warnock, 2007. "Cross-border returns differentials," Globalization and Monetary Policy Institute Working Paper 04, Federal Reserve Bank of Dallas.

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