Unexploited Gains from International Diversification : Patterns of Portfolio Holdings around the World

This paper studies how portfolios with a global investment scope are allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly lim...

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Bibliographic Details
Main Authors:	Didier, Tatiana, Rigobon, Roberto, Schmukler, Sergio L.
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ARBITRAGE ASSET ALLOCATION ASSET ALLOCATIONS ASSET GROWTH ASSET HOLDINGS ASSET MANAGERS ASSET RETURNS ASSETS UNDER MANAGEMENT BALANCE SHEETS BANKS BASIS POINTS BENCHMARK BENCHMARK INDEX BENCHMARK INDEXES BINDING CONSTRAINT BINDING CONSTRAINTS CAPITAL FLOWS CAPITAL MARKETS CENTRAL BANK COMMON STOCKS CONFLICTS OF INTEREST CORPORATE BEHAVIOR COST OF CAPITAL COUNTRY PORTFOLIOS DATA AVAILABILITY DEBT DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DIVERSIFICATION DIVERSIFICATION BENEFITS DOMESTIC INVESTMENTS DOMESTIC MUTUAL FUNDS ECONOMIC ACTIVITY EMERGING ECONOMIES EMERGING EQUITY MARKETS EMERGING MARKET EMERGING MARKET ASSETS EMERGING MARKET FUND EMERGING MARKET FUNDS EMERGING MARKET INDEX EMERGING MARKETS EQUITY MARKETS EQUITY MUTUAL FUND EQUITY MUTUAL FUND INDUSTRY EQUITY MUTUAL FUNDS EXCESS RETURNS EXPOSURE EXPOSURES FINANCIAL INTEGRATION FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL SERVICES INDUSTRY FINANCIAL STUDIES FINANCIAL SUPPORT FINANCING COSTS FOREIGN ASSETS FOREIGN FUND FOREIGN FUNDS FOREIGN STOCKS FUND AGE FUND CATEGORIES FUND INVESTMENTS FUND MANAGER FUND MANAGERS FUND RETURNS FUND SIZE FUND TYPE FUND TYPES FUNDS OF FUNDS GLOBAL ASSET GLOBAL FUND GLOBAL FUNDS GLOBAL INVESTMENT GLOBAL MUTUAL FUNDS GLOBAL PORTFOLIO GLOBALIZATION HEDGE FUNDS INCOME INDIVIDUAL FUND INDIVIDUAL FUNDS INDIVIDUAL MUTUAL FUND INDIVIDUAL MUTUAL FUNDS INFORMATION SHARING INFORMATION TECHNOLOGY INSTITUTIONAL INVESTOR INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE PREMIUM INTERNATIONAL ASSET INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DIVERSIFICATION INTERNATIONAL ECONOMICS INTERNATIONAL EQUITY INTERNATIONAL INVESTMENT INTERNATIONAL INVESTMENTS INTERNATIONAL INVESTORS INTERNATIONAL MARKETS INTERNATIONAL PORTFOLIO INTERNATIONAL PORTFOLIOS INVESTABLE ASSETS INVESTING INVESTMENT CHOICES INVESTMENT DECISIONS INVESTMENT FLOWS INVESTMENT IN STOCKS INVESTMENT OPPORTUNITIES INVESTMENT PATTERN INVESTMENT PATTERNS INVESTMENT POLICIES INVESTMENT RESTRICTIONS INVESTMENT STRATEGIES LACK OF INFORMATION LEVEL OF RISK LOW-INCOME COUNTRIES MARKET CAPITALIZATION MICRODATA MIDDLE-INCOME COUNTRIES MINIMUM INVESTMENT MINIMUM INVESTMENT REQUIREMENTS MUTUAL FUND MUTUAL FUND COMPANIES MUTUAL FUND COMPANY MUTUAL FUND DATA MUTUAL FUND FAMILIES MUTUAL FUND FAMILY MUTUAL FUND HOLDINGS MUTUAL FUND INDUSTRY MUTUAL FUND INVESTMENT MUTUAL FUND INVESTMENTS MUTUAL FUND MANAGERS MUTUAL FUND PERFORMANCE MUTUAL FUND PORTFOLIO MUTUAL FUND PORTFOLIOS MUTUAL FUND RETURNS NAV NET ASSET NET ASSET VALUE NET ASSETS OFFSHORE FINANCIAL CENTERS OPEN-ENDED FUNDS PARTICULAR COUNTRIES PARTICULAR COUNTRY PENSION PENSION FUNDS PERFORMANCE EVALUATION PERFORMANCE OF MUTUAL FUNDS POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATION PORTFOLIO ALLOCATIONS PORTFOLIO CHOICE PORTFOLIO CHOICES PORTFOLIO HOLDING PORTFOLIO HOLDINGS PORTFOLIO INVESTMENT PORTFOLIO STRATEGY PORTFOLIO WEIGHT PORTFOLIO WEIGHTS PORTFOLIOS REGIONAL FUNDS RETIREMENT SAVINGS RETURN RETURN DATA RETURN DIFFERENCES RETURN DIFFERENTIALS RETURN HISTORY RETURN VOLATILITY RETURNS RISK DIVERSIFICATION RISK TAKING SECURITIES SECURITY HOLDING STOCK HOLDINGS STOCK TURNOVER STOCK-PICKING STOCKS SUBSIDIZATION TIME HORIZON TRADING TRADING COSTS TRANSACTION TRANSACTION COSTS TYPES OF FUNDS WORLD FUNDS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110110085213 http://hdl.handle.net/10986/3297

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Summary:	This paper studies how portfolios with a global investment scope are allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly limited number of stocks, around 100. The number of holdings in stocks and countries from a given region declines as the investment scope of funds broadens. This restrictive investment practice has costs. A mean-variance strategy shows unexploited gains from further international diversification. Mutual funds investing globally could achieve better risk-adjusted returns by broadening their asset allocation, including stocks held by more specialized funds within the same mutual fund family (company). This investment pattern is not explained by lack of information or instruments, transaction costs, or a better ability of global funds to minimize negative outcomes. Instead, industry practices related to organizational factors seem to play an important role.

Unexploited Gains from International Diversification : Patterns of Portfolio Holdings around the World

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