International Portfolio Choice: A Spanning Approach
Posted: 3 Apr 2003
Date Written: January 27, 2003
In this paper we analyze the impact of the investment horizon on international portfolio choice. We approach this issue by considering whether or not an investor should add investments from other countries to an existing portfolio. The statistical tests that we employ (spanning tests) are based on whether or not the investment space can significantly be expanded within a mean-variance framework. Our results indicate that for a U.S. based investor with a mean-variance utility function diversifying towards other countries and asset classes depends on the investment horizon. This holds especially for portfolios that originally consist of investments in bonds.
Keywords: international portfolio choice, spanning, mean-variance, horizon
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