Evaluating The International Diversification Benefits Of Chinas New Indexes

Abstract

This article examines the characteristics and performance of selected Chinas financial indexes. Although several indexes were recently made available, this study focuses on three in particular because they are compiled using distinct methodologies. Based on the differences in their composition, they were categorized as either global or investable indexes, herein indexes composed of shares that are readily available for trading in the market. From a portfolio diversification perspective, this study found that U.S. investors seeking exposure to China stand to gain the most from funds tracking the Standard & Poors/CITIC 50 Index (a global index) than from those tracking the FTSE/Xinhua China 25 Indexor the Halter USX China Index (investable indexes). Its risk-return characteristics, along with other performance evaluation measures used, show that it is most efficient in providing international diversification benefits.