International Portfolio Diversification Benefits: The Relevance of Emerging Markets

Ons Bouslama, Olfa Ben Ouda


This paper studies the international portfolio diversification benefits in equity investing from the perspective of an American investor in a context of a growing market correlation. Different investment strategies employing different risk measures (standard variance, GARCH variance, CVaR, LPM (n)) are used to assess the robustness of international diversification benefits. Equity returns from 41 countries are used, including developed, emerging and frontier markets, during the period from 1988–2009.

Our empirical results show that economic gains from international equity diversification are still substantial despite the growing market correlations. Interestingly, international equity diversification allows obvious reduction of returns variability and minimum loss, and this only for restricted portfolios.

We found also that emerging markets continue to be an important component of well-diversified portfolios. A substantial investment in emerging and frontier markets enhances the economic gains of diversified portfolios while it does not seem to reduce portfolio returns variability and minimum loss. However, they consistently improve the risk –based performance measured by the semi variability ratio when we decrease their component in a well diversified portfolio.

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email:

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