Should Us Investors Hold Foreign Stocks?

6 Pages Posted: 15 Sep 2004

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR); European Corporate Governance Institute (ECGI); Canadian Sustainable Finance Network (CSFN)

Asani Sarkar

Federal Reserve Bank of New York

Date Written: March 2002

Abstract

This paper examines the international diversification benefits when short-selling is not allowed. We show that the benefits remain substantial for US equity investors when they are prohibited from short-selling in emerging markets. This result is also true for emerging market stocks that are 'investable' for US investors. In contrast, the benefits of investing in developed countries, that are small to begin with, disappear if short-selling is not allowed. The integration of world equity markets reduces, but does not eliminate, the diversification benefits of investing in emerging markets subject to short-sale constraints.

Keywords: International diversification, Short-sale constraints, Home bias, Asset allocation

JEL Classification: G11, G15

Suggested Citation

Li, Kai and Sarkar, Asani, Should Us Investors Hold Foreign Stocks? (March 2002). Current Issues in Economics and Finance, Vol. 8, No. 3, March 2002, Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=321760

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://https://sites.google.com/view/kaili/home

Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

China Academy of Financial Research (CAFR) ( email )

1954 Huashan Road
Shanghai P.R.China, 200030
China

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Canadian Sustainable Finance Network (CSFN) ( email )

Queens University
Kingston, ON
Canada

HOME PAGE: http://https://smith.queensu.ca/centres/isf/research/network.php

Asani Sarkar

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
416
Abstract Views
3,685
Rank
128,624
PlumX Metrics