The Value Of International Equity Diversification: An Empirical Test

Abstract

Three types of foreign equities traded in the U.S. capital markets—American Depository Receipts, Direct Foreign Shares, and International Mutual Funds—were examined using active portfolio management strategy. These equities were studied from 1983 to 1986 to evaluate them empirically as a form of international diversification. The findings suggest that such foreign diversification, when guided by practitioner-feasible portfolio management, can substantially contribute to the performance of active portfolio management. However, not all foreign equities examined appeared to equally contribute to portfolio performance.