Reevaluating Portfolio Diversification Benefits With New Multinational Indices

Abstract

This study reviews international diversification using new sets of global and regional indices of multinational companies. Contrary to previous studies, it can be demonstrated that U.S. investors can aspire to strategically balanced portfolios through positioning in these indices. On might think that, because U.S.- and European -based companies frequently dominate these indices this might lead to poor diversification benefits. After all, one could argue that policymakers from the U.S. and the other major economies are increasingly coordinating their macroeconomic decisions resulting in the same monetary and public policies that affect a portfolio of purely domestic firms. Our results, however, show that it is far from being the case.