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How To Diversify Internationally: A Comparison of Conditional and Unconditional Asset Allocation Methods

Author

Listed:
  • Laurent BARRAS,

    (HEC-University of Geneva and FAME)

  • Dušan ISAKOV

    (HEC-University of Geneva, International Center FAME)

Abstract

To obtain the maximum benefits from diversification, financial theory suggests that investors should invest internationally because of the larger potential for risk reduction stemming from the lower correlation exisiting between assets of different countries. The question that we raise in this paper is how to choose the best mix of countries to diversify internationally? We compare several methods of asset allocation from a Swiss perspective over the period 1988-2001. We simulate different investment policies and compare conditional and unconditional methods. We find that conditional methods, that explicitly assume time-variation in expected returns, outperform all other asset allocation methods.

Suggested Citation

  • Laurent BARRAS, & Dušan ISAKOV, 2001. "How To Diversify Internationally: A Comparison of Conditional and Unconditional Asset Allocation Methods," FAME Research Paper Series rp37, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp37
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    Cited by:

    1. Nadine Gatzert & Hato Schmeiser, 2011. "On the risk situation of financial conglomerates: does diversification matter?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(1), pages 3-26, March.
    2. Carlos Castro & Nini Johana Marin, 2014. "Stock return comovements and integration within the Latin American integrated market," Documentos de Trabajo 11082, Universidad del Rosario.

    More about this item

    Keywords

    portfolio management; international diversification; asset pricing models; conditioning information;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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