Closed-End Country Funds and International Diversification

26 Pages Posted: 30 Jun 2015

See all articles by Andreas Charitou

Andreas Charitou

University of Cyprus

Andreas K. Makris

PricewaterhouseCoopers

George Nishiotis

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance

Date Written: June 30, 2015

Abstract

Using data from 1993 to 2002 for eight developed and fifteen emerging markets, we find that return correlations, mean-variance spanning, and Sharpe ratio tests support that closed-end country funds (CECF) can mimic their corresponding foreign indices, and that they are more heavily influenced by their corresponding local markets instead of the U.S. market. This implies that U.S. investors, by investing in CECF, can achieve similar international diversification benefits to those achieved by investing directly in the foreign indices. We also document increased correlation between the U.S. market and foreign markets during this period and find no compelling evidence of economically and statistically significant international diversification benefits, as opposed to a pre-1993 period. These findings could be associated with the financial market liberalization that was prevalent during the period.

Keywords: closed-end country funds; international diversification; emerging markets; liberalization; spanning tests

JEL Classification: G15

Suggested Citation

Charitou, Andreas and Makris, Andreas K. and Nishiotis, George P., Closed-End Country Funds and International Diversification (June 30, 2015). Multinational Finance Journal, Vol. 10, No. 3/4, p. 251-276, 2006. Available at SSRN: https://ssrn.com/abstract=2625024

Andreas Charitou (Contact Author)

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893624 (Phone)
+357 2 895030 (Fax)

Andreas K. Makris

PricewaterhouseCoopers ( email )

54 Gill Street
New Plymouth 4310
New Zealand

George P. Nishiotis

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance ( email )

Cyprus

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