The Empirical Evidence Conclusively Supports Global Investing

Abstract

Although there still exits a sense of uneasiness in the stock market about global investing, the above average rate of returns and steady growth of international companies for the past ten years compels prudent investor to invest abroad. The main goal of this work is to examine the performance of foreign companies and compare their risk-adjusted returns to the returns of the US companies. In this process we selected the foreign companies that have been accepted by our financial market and traded in the US as ADR (American Depository Receipts) in NYSE or NASDAQ. Additionally, we have considered only those ADRs that had high volume and outperformed the industry index. Specifically, this study is going to address whether the performance of a global portfolio meets or surpasses the performance of a diversified domestic portfolio. More importantly the emphasis of this work is to determine whether the global portfolios consistently and significantly outperformed the US equity portfolios. The asset selection and the optimization process applied to domestic and international portfolios are identical to maintain consistency and comparability of the results. For each portfolio we used the 2003-2004 daily observations to optimize allocations and we used the 2005-2006 data to evaluate the performance of each portfolio.