Is International Portfolio Diversification Relevant for the Eurozone Investor?

38 Pages Posted: 11 Oct 2006

See all articles by Olasupo Olusi

Olasupo Olusi

Durham University - Centre for Empirical Research in Finance

Antonios Antoniou

Wealth Associates

Krishna Paudyal

Independent

Date Written: May 2006

Abstract

This paper evaluates the relevance of an international equity diversification strategy to a home-biased German investor by comparing the payoffs from such a strategy with those from domestic diversification. Following the removal of an important investment barrier - exchange rate risks in eurozone markets, we assess whether the investor's portfolio performance improves significantly by diversifying across euro area equity markets, rather than in Germany only. The results reveal that the investor will benefit significantly from adopting an international diversification strategy. However, these benefits are exhausted by diversifying within the eurozone. Payoffs from equity acquisitions across the rest of the world are statistically and economically insignificant.

Keywords: Portfolio Selection, Industry Diversification, International Portfolio Diversification, Home Bias, Home-Made Diversification

JEL Classification: G11, G15, F20

Suggested Citation

Olusi, Olasupo and Antoniou, Antonios and Paudyal, Krishna N., Is International Portfolio Diversification Relevant for the Eurozone Investor? (May 2006). Available at SSRN: https://ssrn.com/abstract=936659 or http://dx.doi.org/10.2139/ssrn.936659

Olasupo Olusi (Contact Author)

Durham University - Centre for Empirical Research in Finance ( email )

Durham Business School
Mill Hill Lane
Durham, DH1 3LB
United Kingdom
+44-1913345298 (Phone)
+44-191-3345201 (Fax)

Antonios Antoniou

Wealth Associates ( email )

Alpine House,
Honeypot Lane
London, NW9 9RX
United Kingdom

Krishna N. Paudyal

Independent ( email )

No Address Available

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