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Is portfolio diversification still effective: evidence spanning three crises from the perspective of U.S. investors

Author

Listed:
  • Rong Huang

    (University of Stirling)

  • Dimos Kambouroudis

    (University of Stirling)

  • David G. McMillan

    (University of Stirling)

Abstract

This paper uses over twenty years of data to examine diversification benefits for U.S. investors through assessing different portfolio opportunities, including a stock (60%)-bond (40%) portfolio, an internationally diversified stock portfolio, and a cross-asset diversified portfolio compared with investing only in the U.S. stock market. Our dataset consists of three stock indices (S&P 500, MSCI EAFE, and MSCI EM) and three assets (Gold, Oil, and Bonds). Portfolios are built using both equal- and mean-variance efficient-weights and are compared primarily using the Sharpe ratio. The results indicate that before 2009, U.S. investors could benefit from an internationally diversified stock portfolio. However, since 2009, this international stock portfolio is less likely to benefit U.S. investors. In contrast, the cross-asset diversified portfolio does provide greater benefit and outperforms the U.S only, the stock–bond portfolio, and the international stock portfolio over different time periods. Of note, the mean-variance efficient portfolio weighting outperforms the equal-weighted portfolio. Overall, a portfolio consisting of the S&P500 Index, gold, oil, and U.S. 10-year Treasury Note is the preferred option for U.S. investors.

Suggested Citation

  • Rong Huang & Dimos Kambouroudis & David G. McMillan, 2025. "Is portfolio diversification still effective: evidence spanning three crises from the perspective of U.S. investors," Journal of Asset Management, Palgrave Macmillan, vol. 26(2), pages 115-135, March.
    • Handle: RePEc:pal:assmgt:v:26:y:2025:i:2:d:10.1057_s41260-025-00398-z
    DOI: 10.1057/s41260-025-00398-z
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    More about this item

    Keywords

    Stocks; Diversification; International; Cross-assets;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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