The Performance of International Portfolios
Charles P. Thomas
Federal Reserve Board
Francis E. Warnock
University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)
FRB International Finance Discussion Paper No. 817
We evaluate the performance of U.S. investors' international portfolios over a 25-year period. Portfolio returns are formed by first estimating monthly bilateral holdings in 44 countries using high-quality but infrequent benchmark surveys that enable us to eliminate the geographical bias in reported capital flows data. In their foreign equity portfolios, U.S. investors achieved a significantly higher Sharpe ratio than global benchmarks, especially since 1990. We uncover three potential reasons for this success. First, they abstained from returns - chasing behavior and instead sold past winners. Second, conditional performance tests provide no evidence that the superior (unconditional) performance owed to private information, suggesting that the successful exploitation of publicly available information played a role. Third, well-documented preferences for cross-listed and well-governed foreign firms appear to have served U.S. investors well. We also evaluate the unconditional performance of bond portfolios, about which less information is available, and find that U.S. investors achieved higher Sharpe ratios than global benchmarks, although the difference here is not statistically significant.
Number of Pages in PDF File: 68
Keywords: Home bias, momentum, contrarian, conditional performance measures, equities, bonds
JEL Classification: G11, G12, F21working papers series
Date posted: September 27, 2004
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