Diversification, Integration and Emerging Market Closed-End Funds
Posted: 7 Jul 1998
Date Written: February 22, 1996
We study a new class of unconditional and conditional mean-variance spanning tests that exploit the duality between Hansen-Jagannathan bounds  and mean-variance standard deviation frontiers. The tests are shown to be equivalent to standard tests in population but we document substantial differences in the small sample performance of alternative tests. Our empirical application examines the diversification benefits from emerging equity market using an extensive new data set on U.S.- and U.K.-traded closed-end funds. We find significant diversification benefits for the U.K. country funds, but not for the U.S. funds. The difference appears to relate to differences in portfolio holdings rather than to the behavior of premiums in the U.S. versus the U.K. With the exception of the opening of Taiwan's market in January 1991, explicit changes in investment barriers had no negative impact on the diversification benefits from holding a market's closed-end funds.
JEL Classification: G11, G15, F36
Suggested Citation: Suggested Citation