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Unexploited gains from international diversification : patterns of portfolio holdings around the world
 
Author:Didier, Tatiana; Rigobon, Roberto; Schmukler, Sergio L.; Collection Title:Policy Research working paper ; no. WPS 5524
Country:World; Date Stored:2011/01/10
Document Date:2011/01/01Document Type:Policy Research Working Paper
SubTopics:Access to Finance; Emerging Markets; Debt Markets; Mutual Funds; Rural Development Knowledge & Information SystemsLanguage:English
Major Sector:FinanceRel. Proj ID:1W-Unexploited Gains From International Diversification? -- -- P106371;
Region:The World RegionReport Number:WPS5524
Sub Sectors:General finance sectorVolume No:1 of 1

Summary: This paper studies how portfolios with a global investment scope are allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly limited number of stocks, around 100. The number of holdings in stocks and countries from a given region declines as the investment scope of funds broadens. This restrictive investment practice has costs. A mean-variance strategy shows unexploited gains from further international diversification. Mutual funds investing globally could achieve better risk-adjusted returns by broadening their asset allocation, including stocks held by more specialized funds within the same mutual fund family (company). This investment pattern is not explained by lack of information or instruments, transaction costs, or a better ability of global funds to minimize negative outcomes. Instead, industry practices related to organizational factors seem to play an important role.

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