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An empirical examination of the diversification benefits of U.K. international equity closed-end funds

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  • Fletcher, Jonathan

Abstract

I use the Bayesian approach of Wang (1998) to examine the diversification benefits of international equity U.K. closed-end funds (CEF) in the presence of market frictions. No short selling constraints substantially reduce, and in some cases eliminate the diversification benefits of CEF. However, adjusting for higher trading costs in the benchmark assets, the diversification benefits of the funds are significant. The paper also finds that when comparing to the international equity exchange-traded funds (ETF), that both groups of funds are necessary to maximize the benefits of international diversification.

Suggested Citation

  • Fletcher, Jonathan, 2018. "An empirical examination of the diversification benefits of U.K. international equity closed-end funds," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 23-34.
  • Handle: RePEc:eee:finana:v:55:y:2018:i:c:p:23-34
    DOI: 10.1016/j.irfa.2017.10.010
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    More about this item

    Keywords

    Diversification benefits; Bayesian analysis; Closed-end funds;

    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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