HOW MANY INTERNATIONAL FUNDS MAKE A DIVERSIFIED PORTFOLIO?
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Previous academic research on international mutual funds (IMFs) has concentrated on measuring petfor- mance ofindividual mutualfunds in terms oftheir as et selection, timing, and diversification. None, however, have addressed the superiority ofcross-IMF diversification, and no research hasfocused on the optimal number ofIMFs in a diversified portfolio, or the marginal contributions to risk reduction ofan additional IMF Based on Solniks (I974) methodology, this short paper has shown that further risk reduction is attainable through cross-IMF invest- ing, and complete effective international diversification is achieved with an average ofeight IMFs per portfolio
Abstract
Previous academic research on international mutual funds (IMFs) has concentrated on measuring petfor- mance ofindividual mutualfunds in terms oftheir as et selection, timing, and diversification. None, however, have addressed the superiority ofcross-IMF diversification, and no research hasfocused on the optimal number ofIMFs in a diversified portfolio, or the marginal contributions to risk reduction ofan additional IMF Based on Solniks (I974) methodology, this short paper has shown that further risk reduction is attainable through cross-IMF invest- ing, and complete effective international diversification is achieved with an average ofeight IMFs per portfolio