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Diversification Benefits of Emerging Markets Subject to Portfolio Constraints

Working Paper No. UBCFIN99-5

Sauder School of Business Working Paper

24 Pages Posted: 23 Jun 2001  

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Asani Sarkar

Federal Reserve Bank of New York

Zhenyu Wang

University of Texas at Austin - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

This paper examines the international diversification benefits subject to portfolio constraints --- in particular, constraints on short selling. We show that the international diversification benefits remain substantial for U.S. equity investors when they are prohibited from short selling in emerging markets. This result is robust to investment restrictions on non-native individuals. It is also unaffected by the fact that the U.S. equity index portfolio is not on the efficient frontier spanned by U.S. securities. The integration of world equity markets reduces, but does not eliminate, the diversification benefits of investing in emerging markets subject to short-sale constraints.

Keywords: International diversification, short-sale constraints, home bias, asset allocation, Bayesian inference

JEL Classification: G11, G15, C11, C15

Suggested Citation

Li, Kai and Sarkar, Asani and Wang, Zhenyu, Diversification Benefits of Emerging Markets Subject to Portfolio Constraints. Working Paper No. UBCFIN99-5; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=272928 or http://dx.doi.org/10.2139/ssrn.272928

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Asani Sarkar

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

Zhenyu Wang

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5781 (Phone)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/zhenyu.wang/

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