Should Us Investors Hold Foreign Stocks?

6 Pages Posted: 15 Sep 2004

See all articles by Kai Li

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

Date Written: March 2002

Abstract

This paper examines the international diversification benefits when short-selling is not allowed. We show that the benefits remain substantial for US equity investors when they are prohibited from short-selling in emerging markets. This result is also true for emerging market stocks that are 'investable' for US investors. In contrast, the benefits of investing in developed countries, that are small to begin with, disappear if short-selling is not allowed. 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

JEL Classification: G11, G15

Suggested Citation

Li, Kai and Sarkar, Asani, Should Us Investors Hold Foreign Stocks? (March 2002). Current Issues in Economics and Finance, Vol. 8, No. 3, March 2002, Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=321760

Kai Li (Contact Author)

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

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China Academy of Financial Research (CAFR)

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Asani Sarkar

Federal Reserve Bank of New York ( email )

Research Department
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United States
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HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

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