Gains From International
Diversification: 1968-85 Returns on Portfolios of Stocks and
Robert Grauer and Nils H. Hakansson
The Journal of Finance, 42, July 1987, 721-739.
This paper applies the multi-period investment model to a universe of international
securities on the basis of the simple probability assessment approach. Our
principal findings are: 1) the gains from including non-U.S. asset categories in the
universe were remarkably large (in some cases statistically significant), especially
for the highly risk-averse strategies, 2) the gains form removing the no leverage
constraint were more substantial than they were in the absence of non-U.S. securities,
and 3) there is strong evidence of market segmentation in that the optimal levels
of investment in U.S. securities were mostly zero in the presence of the non-U.S.
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