Evaluating the Diversification in Benefits of the New Country Funds
This article investigates the degree to which country funds provide diversification benefits to a U.S. investor. The diversification value is examined both in an absolute sense and in terms of comparison to direct investment in the home country stock market. The results indicate that country funds offer some diversification benefit but are poor substitutes for direct holdings of foreign equities. The partitioning of country fund return volatility between trading and non-trading hours is also examined. Volatility is found to be greatest when the New York stock markets are open, even when the underlying country's stock trading and business hours do not match New York trading hours. This suggests that country funds behave more like domestic U.S. stocks than like foreign equity portfolios.
Journal of Portfolio Management
Bailey, WARREN and LIM, Young Sain, Joseph.
Evaluating the Diversification in Benefits of the New Country Funds. (1992). Journal of Portfolio Management. 18, (3), 74-80. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/1139