—The advantage of globally diversifying one’s investment portfolio to gain greater risk reduction has changed over the last fifty years. This empirical study analyzes the diversification benefits of the global equity market over almost two decades. The study compares three global regions in which the United States has a long-standing business relationship. The analyses are based on 1991-2008 data. The study compares the empirical results to previous studies which found that there has been a clear decrease in the advantage of international diversification since the 1950s and 1960s. This study found that the Western Hemisphere region produced the greatest amount of diversification advantage almost every time; that as the proportion invested internationally increased, the amount of the diversification advantage increased; and that the advantage of international diversification has, indeed, decreased drastically over the eighteen year period of this study and as compared to the previous studies. While there is still an advantage, albeit quite small, to globally diversifying one’s financial portfolio, the degree of this advantage has clearly suffered from international integration. This study is important because it provides a current understanding and assessment of the risks and rewards inherent in global diversification while dispelling outdated concepts and facts through statistical analysis.
—International diversification, risk reduction, coefficient correlation, global portfolio, international investment.
C. Goffinet and B. Maniam are with Sam Houston State University, Huntsville, Texas, USA (e-mail: email@example.com; firstname.lastname@example.org).
H. Leavell is with Sam Houston University, Huntsville, TX 77341, USA (e-mail: email@example.com).
Cite: Courtney Goffinet, Balasundram Maniam, and Hadley Leavell, "Perspectives on International Diversification: From 1991 to Pre-financial Crisis of 2008," International Journal of Trade, Economics and Finance vol.6, no.4, pp. 199-204, 2015.