IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Unexploited Gains From International Diversification: Patterns Of Portfolio Holdings Around The World

  • Tatiana Didier

    (World Bank)

  • Roberto Rigobon

    (MIT and NBER)

  • Sergio L. Schmukler

    (World Bank)

Using unique data on mutual fund portfolios with different investment scopes, we study the extent of international diversification. Mutual funds invest in a surprisingly limited number of stocks—about 100. The number of holdings from a given region declines as the investment scope broadens. Moreover, unexploited gains exist from international diversification. Funds that invest globally could achieve better risk-adjusted returns by adding stocks held by more specialized funds within the same family. These findings are not driven by different sectoral allocations, lack of information or instruments, transaction costs, or different tail risks. Instead, organizational factors might play an important role. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00351
File Function: link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 5 (December)
Pages: 1562-1583

as
in new window

Handle: RePEc:tpr:restat:v:95:y:2013:i:5:p:1562-1583
Contact details of provider: Web page: http://mitpress.mit.edu/journals/

Order Information: Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

References listed on IDEAS
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.:

as in new window
  1. Kim, Woochan & Wei, Shang-Jin, 2002. "Foreign portfolio investors before and during a crisis," Journal of International Economics, Elsevier, vol. 56(1), pages 77-96, January.
  2. Hali J. Edison & Francis E. Warnock, 2004. "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 691-704, August.
  3. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  4. Nick Bloom & John Van Reenen, 2006. "Measuring and explaining management practices across firms and countries," LSE Research Online Documents on Economics 733, London School of Economics and Political Science, LSE Library.
  5. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "International Investment Patterns," The Institute for International Integration Studies Discussion Paper Series iiisdp024, IIIS.
  6. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  7. Brennan, Michael J & Cao, H Henry, 1997. " International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-80, December.
  8. Sandra E. Black & Lisa M. Lynch, 2001. "How To Compete: The Impact Of Workplace Practices And Information Technology On Productivity," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 434-445, August.
  9. Rene M. Stulz, 2005. "The Limits of Financial Globalization," NBER Working Papers 11070, National Bureau of Economic Research, Inc.
  10. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 389-432.
  11. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  12. Jeremy C. Stein, 2005. "Why are Most Funds Open-End? Competition and the Limits of Arbitrage," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 247-272.
  13. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
  14. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
  15. Bolton, Patrick & Freixas, Xavier & Shapiro, Joel, 2007. "Conflicts of interest, information provision, and competition in the financial services industry," Journal of Financial Economics, Elsevier, vol. 85(2), pages 297-330, August.
  16. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc.
  17. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
  18. Antonin Aviat & Nicolas Coeurdacier, 2004. "The geography of trade in goods and asset holdings," DELTA Working Papers 2004-10, DELTA (Ecole normale supérieure).
  19. Eun, Cheol S. & Huang, Wei & Lai, Sandy, 2008. "International Diversification with Large- and Small-Cap Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(02), pages 489-524, June.
  20. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
  21. Harald Hau & Helene Rey, 2008. "Home Bias at the Fund Level," American Economic Review, American Economic Association, vol. 98(2), pages 333-38, May.
  22. Aart Kraay & Norman Loayza & Luis Servén & Jaume Ventura, 2005. "Country Portfolios," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 914-945, 06.
  23. Obstfeld,Maurice & Taylor,Alan M., 2004. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521633178, June.
  24. Zvi Griliches, 1998. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 157-186 National Bureau of Economic Research, Inc.
  25. Shleifer, Andrei & Vishny, Robert W, 1990. "Equilibrium Short Horizons of Investors and Firms," American Economic Review, American Economic Association, vol. 80(2), pages 148-53, May.
  26. R. Gaston Gelos & Shang-Jin Wei, 2005. "Transparency and International Portfolio Holdings," Journal of Finance, American Finance Association, vol. 60(6), pages 2987-3020, December.
  27. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2005. "Long-Term Global Market Correlations," The Journal of Business, University of Chicago Press, vol. 78(1), pages 1-38, January.
  28. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
  29. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, 04.
  30. Driessen, Joost & Laeven, Luc, 2007. "International portfolio diversification benefits: Cross-country evidence from a local perspective," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1693-1712, June.
  31. Norman Strong & Xinzhong Xu, 2003. "Understanding the Equity Home Bias: Evidence from Survey Data," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 307-312, May.
  32. van Wincoop, Eric, 1999. "How big are potential welfare gains from international risksharing?," Journal of International Economics, Elsevier, vol. 47(1), pages 109-135, February.
  33. Francine Lafontaine & Kathryn L. Shaw, 2001. "Targeting Managerial Control: Evidence from Franchising," NBER Working Papers 8416, National Bureau of Economic Research, Inc.
  34. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2005. "Thy Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers," Journal of Finance, American Finance Association, vol. 60(6), pages 2801-2824, December.
  35. Mark Grinblatt, 2001. "How Distance, Language, and Culture Influence Stockholdings and Trades," Journal of Finance, American Finance Association, vol. 56(3), pages 1053-1073, 06.
  36. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
  37. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2008. "Internationalization and the evolution of corporate valuation," Journal of Financial Economics, Elsevier, vol. 88(3), pages 607-632, June.
  38. Alexander Kempf & Stefan Ruenzi, 2004. "Tournaments in Mutual Fund Families," Finance 0404011, EconWPA.
  39. Vikram Nanda, 2004. "Family Values and the Star Phenomenon: Strategies of Mutual Fund Families," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 667-698.
  40. Nijman, T.E. & de Roon, F.A. & Werker, B.J.M., 2001. "Testing for Mean-Variance spanning with short sales constraints and transaction costs : The case of emerging markets," Other publications TiSEM f4a3551a-d7ae-4c22-8813-b, Tilburg University, School of Economics and Management.
  41. Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
  42. Joshua M. Pollet & Mungo Wilson, 2008. "How Does Size Affect Mutual Fund Behavior?," Journal of Finance, American Finance Association, vol. 63(6), pages 2941-2969, December.
  43. Henderson, Rebecca. & Cockburn, Iain., 1994. "Measuring competence? : exploring firm effects in pharmaceutical research," Working papers 3712-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  44. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
  45. Louis K.C. Chan & Jason Karceski & Josef Lakonishok, 1999. "On Portfolio Optimization: Forecasting Covariances and Choosing the Risk Model," NBER Working Papers 7039, National Bureau of Economic Research, Inc.
  46. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  47. Bertrand, Marianne & Schoar, Antoinette, 2003. "Managing With Style: The Effect of Managers on Firm Policies," Working papers 4280-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  48. Bebchuk, Lucian Arye & Stole, Lars A, 1993. " Do Short-Term Objectives Lead to Under- or Overinvestment in Long-Term Projects?," Journal of Finance, American Finance Association, vol. 48(2), pages 719-29, June.
  49. Chan, Louis K C & Karceski, Jason & Lakonishok, Josef, 1999. "On Portfolio Optimization: Forecasting Covariances and Choosing the Risk Model," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 937-74.
  50. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  51. Fang Cai & Francis E. Warnock, 2006. "International Diversification at Home and Abroad," NBER Working Papers 12220, National Bureau of Economic Research, Inc.
  52. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  53. de Roon, F.A. & Nijman, T.E. & Werker, B.J.M., 1998. "Testing for mean-variance spanning with short sales constraints and transaction costs : The case of emerging markets," Discussion Paper 1998-07, Tilburg University, Center for Economic Research.
  54. Richard R. Nelson & Sidney G. Winter, 2002. "Evolutionary Theorizing in Economics," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 23-46, Spring.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:95:y:2013:i:5:p:1562-1583. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.