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POLITICAL RISK AND THE BENEFITS OF INTERNATIONAL PORTFOLIO DIVERSIFICATION.
- Source :
- Journal of International Business Studies; 1995, Vol. 26 Issue 2, p301-318, 18p, 3 Charts, 2 Graphs
- Publication Year :
- 1995
-
Abstract
- This paper examines the benefits of portfolio investment in the stock markets of politically risky countries by evaluating the effects of political risk constraints on the performance of a portfolio of international stocks. We use monthly data on political risk ratings and stock returns for a sample of thirty-six countries from April 1982 to December 1991, Ex-post and ex-ante portfolio selection strategies are developed to assess the gains from international diversification. Efficient sets are derived using a quadratic programming technique. We use four ex-ante portfolio strategies whose optimal portfolio weights are those of the equally weighted portfolio, the minimum-variance portfolio, the certainty-equivalence tangency portfolio and the Bayes-Stein portfolio. The empirical findings, based on the performance tests of Jobson and Korkie [1981], suggest that diversification among politically risky countries improves the risk-return characteristics of optimal portfolios. However, the most striking benefit of the inclusion of politically risky countries in an international portfolio is the reduction in overall portfolio risk. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00472506
- Volume :
- 26
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Journal of International Business Studies
- Publication Type :
- Academic Journal
- Accession number :
- 9508081567
- Full Text :
- https://doi.org/10.1057/palgrave.jibs.8490175