Multinationals and the Gains from International Diversification
Title | Multinationals and the Gains from International Diversification PDF eBook |
Author | Patrick F. Rowland |
Publisher | |
Pages | 61 |
Release | 2002 |
Genre | |
ISBN |
One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.
Multinationals and the Gains from International Diversification
Title | Multinationals and the Gains from International Diversification PDF eBook |
Author | Patrick F. Rowland |
Publisher | |
Pages | 74 |
Release | 1998 |
Genre | Diversification in industry |
ISBN |
One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.
International Diversification and the Multinational Enterprise
Title | International Diversification and the Multinational Enterprise PDF eBook |
Author | Alan M. Rugman |
Publisher | Lexington, Mass. ; Toronto : Heath |
Pages | 168 |
Release | 1979 |
Genre | Business & Economics |
ISBN |
Investor Benefits from International Diversification
Title | Investor Benefits from International Diversification PDF eBook |
Author | Mikael Gustafsson |
Publisher | |
Pages | 34 |
Release | 1985 |
Genre | |
ISBN |
Are the Gains from Foreign Diversification Diminishing?
Title | Are the Gains from Foreign Diversification Diminishing? PDF eBook |
Author | Karen K. Lewis |
Publisher | |
Pages | 47 |
Release | 2012 |
Genre | Economics |
ISBN |
How important is foreign diversification? In this paper, we re-examine this question motivated by findings from the literature about foreign companies that are listed on US exchanges. Specifically, domestic portfolios including cross-listed stocks can provide the same diversification as foreign market returns without the need for US investors to go abroad. At the same time, the betas of these foreign stock returns against the US market increase after cross-listing, suggesting diversification worsens over time. In this paper, we assess the impact of these changes on foreign diversification for a US investor. We test for and estimate breaks in the sensitivity of individual foreign stocks listed on US exchanges. We find that roughly half of the changes in betas arise from greater integration between the U.S. and the companies' home markets, not in the companies betas themselves. Moreover, the gains from diversifying into these stocks has declined over time -- National Bureau of Economic Research web site.
International Diversification at Home and Abroad
Title | International Diversification at Home and Abroad PDF eBook |
Author | Fang Cai |
Publisher | |
Pages | 38 |
Release | 2007 |
Genre | |
ISBN |
It is an established fact that investors favor the familiar%u2014be it domestic securities or, within a country, the securities of nearby firms%u2014and avoid investments that would provide the greatest diversification benefits. While we do not rule out familiarity as an important driver of portfolio allocations, we provide new evidence of investors%u2019 international diversification motive. In particular, our analysis of the security-level U.S. equity holdings of foreign and domestic institutional investors indicates that institutional investors reveal a preference for domestic multinationals (MNCs), even after controlling for familiarity factors. We attribute this revealed preference to the desire to obtain %u201Csafe%u201D international diversification. We then show that holdings of domestic MNCs are substantial and, after accounting for this home-grown foreign exposure, that the share of %u201Cforeign%u201D equities in investors%u2019 portfolios roughly doubles, reducing (but not eliminating) the observed home bias.
Market Recognition of Multinationals' International Diversification
Title | Market Recognition of Multinationals' International Diversification PDF eBook |
Author | Md. Jawadur Rahim Zahid |
Publisher | |
Pages | 323 |
Release | 1997 |
Genre | |
ISBN |