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The Benefit of International Equity Diversification: The ‘1/N’ Diversification Rule

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  • Ons Bouslama
  • Olfa Ben Ouda

Abstract

This paper studies the international portfolio diversification benefits across time in equity investing using the „1/N‟ diversification rule. Equity returns from 70 countries are used, including developed, emerging and frontier markets, during the period from 1976–2009. We highlight that the „1/N‟ diversification rule enables international portfolio benefits across 9 sub periods except the 3 sub periods (31/7/1980-31/12/1984), (29/1/1988-31/12/1992) and (31/1/1995-29/1/1999). Therefore, we study the benefit of international equity investment in five investment universes across two partitions (30/01/1976-31/12/2009) and (29/01/1988-31/12/2009). We found that international diversification in emerging markets is beneficial only when selective approach is undertaken. Notably, international diversification benefit is highest when emerging markets are combined with developed markets.

Suggested Citation

  • Ons Bouslama & Olfa Ben Ouda, 2015. "The Benefit of International Equity Diversification: The ‘1/N’ Diversification Rule," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(1), pages 59-68.
    • Handle: RePEc:rss:jnljef:v4i1p6
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