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Diversification Benefits of iShares and Closed‐End Country Funds

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  • Anita K. Pennathur
  • Natalya Delcoure
  • Dwight Anderson

Abstract

We study the performance and diversification of iShares and their rival closed‐end country funds from April 1996 to December 1999. International iShares are country‐specific series of securities that track the price and yield of a specific Morgan Stanley Capital Internation (MSCI) country index and, presumably, should provide diversification benefits. Our single‐index model demonstrates that iShares replicate the home index, showing some potential for diversification. However, our two‐factor model, which isolates the “true” diversification virtues, documents that both iShares and closed‐end country fund market prices maintain considerable exposure to the U.S. market. Furthermore, the net asset value returns of the closed‐end funds demonstrate a strong home country exposure, suggesting there is no substitute for direct foreign investment.

Suggested Citation

  • Anita K. Pennathur & Natalya Delcoure & Dwight Anderson, 2002. "Diversification Benefits of iShares and Closed‐End Country Funds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(4), pages 541-557, December.
    • Handle: RePEc:bla:jfnres:v:25:y:2002:i:4:p:541-557
    DOI: 10.1111/1475-6803.00036
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