The comparative role of iShares and country funds in internationally diversified portfolios

Tsai, Pei Jung; Swanson, Peggy E.

doi:10.1016/j.jeconbus.2009.06.003

Cited by 18 publications

(11 citation statements)

References 58 publications

(55 reference statements)

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“…These results are consistent with those reported by Tsai and Swanson (), Huang and Lin (), Miralles‐Marcelo et al (), and Miralles‐Quiros and Miralles‐Quiros () who have shown the benefits of diversification in stock markets. Therefore, we confirm that it is possible to outperform the naïve diversification strategy and active portfolio techniques when we construct optimal portfolios, which include an accurate prediction of the vector of expected returns and the covariance matrix in the optimization problem.…”

Section: Robustness Testsupporting

confidence: 93%

“…Only when the out-of-sample period is smaller than 1,000 observations (approximately when the in sample starts at March 11, 2009 and the out of sample is March 1, 2013), we find that the naïve strategy outperforms the proposed strategy. These results are consistent with those reported by Tsai and Swanson (2009), Huang and Lin (2011), Miralles-Marcelo et al (2015, and Miralles-Quiros and Miralles-Quiros (2017) who have shown the benefits of diversification in stock markets. Therefore, we confirm that it is possible to outperform the naïve diversification strategy and active portfolio techniques when we construct optimal portfolios, which include an accurate prediction of the vector of expected returns and the covariance matrix in the optimization problem.…”

Section: Robustness Testsupporting

confidence: 93%

“…These ETFs help investors to create a diversified portfolio that meets their specific asset allocation needs. Tsai and Swanson () show that ETFs provide the U.S. investors with greater diversification benefits than country funds. Huang and Lin () conclude that international diversification with ETFs is a reasonable strategy.…”

Section: Databasementioning

confidence: 99%

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Diversification and the benefits of using returns standardized by range‐based volatility estimators

Miralles‐Quirós

Nogueira

2018

Int. J Fin Econ

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The aim of our research is to analyse the benefits for the U.S. investors of combining their domestic exchange trade fund (ETF) with ETFs, which track other developed markets such as the United Kingdom, Japan, Germany, and France. We evaluate the out‐of‐sample performance of six strategies using the returns and volatility forecasts from a VAR Asymmetric Dynamic Conditional Correlation GARCH approach where returns standardized by range‐based volatility estimators were used as endogenous variables. The initial outperformances of some strategies using classic returns were significantly improved when returns were standardized by the Garman–Klass precise volatility estimator. Additionally, we find a large decrease in the weights of the North American ETF in the best performing strategies, meaning that it is possible to obtain benefits from diversification. These findings are relevant not only for academics but also for active professional managers who can use this technique to add value to their international diversification strategies.

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Section: Robustness Testsupporting

confidence: 93%

Section: Robustness Testsupporting

confidence: 93%

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Diversification and the benefits of using returns standardized by range‐based volatility estimators

Miralles‐Quirós

Nogueira

2018

Int. J Fin Econ

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“…However, the index tracking capability of iShares may be affected by the fact that they only invest in a subset of the Morgan Stanley Capital International (MSCI) index that they claim to track. This is achieved by using a portfolio optimization approach that seeks to minimize transaction costs (Tsai & Swanson, ). Phengpis and Swanson () report that, although assets in an iShares fund are expected to mirror the underlying market index using “representative sampling,” actual returns may differ if securities held by the fund that are not in the underlying index do not perform as expected.…”

Section: Discussion Of the Literaturementioning

confidence: 99%

The international diversification benefits of U.S.‐traded equity products

O'Hagan‐Luff

Berrill

2018

Int. J Fin Econ

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The benefits of international diversification for equity investors have been highlighted for decades. Despite the reduction of many previous barriers to foreign investment, investors are found to persistently overweight domestic equities. This paper examines whether the benefits of international diversification are available via U.S.‐traded equity products over a 15‐year period between 1996 and 2011. The equity products investigated are multinational corporations (MNCs), American depository receipts (ADRs), single‐country exchange‐traded funds, iShares, and closed‐end country funds. Mean‐variance spanning tests and Sharpe ratio analysis reveal that portfolios of ADRs and MNCs offer the greatest international diversification benefits to U.S. investors in a domestic setting. Whereas the benefits of international diversification vary during periods of differing market conditions, the findings for ADRs and MNCs remain robust. We conclude that it is possible to reap the benefits of international diversification via U.S.‐traded equity products but that the benefits of different equity types vary significantly.

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“…Several studies in the literature examine whether these investments provide a cost-effective benefit for the investors. Tsai and Swanson (2009) showed that ETFs provide greater diversification benefits. Huang and Lin (2011) proved the reasonability of the international diversification strategy.…”

Section: Introductionmentioning

confidence: 99%

Group Risk Parity Strategies for ETFs Portfolios

Kaucic¹,

Valentinuz²

2018

CBR

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This research aims to compare different strategies that a non-professional investor in exchange-traded funds (ETFs) could employ to reach a good performance both from profits and from a risk perspective. In recent years, especially after the 2008 crisis, a new technique to evaluate the risk has become more popular, the so-called risk parity, which seeks to equalise the contributions to risk of the portfolio constituents. Our study analyses 17 variants of risk parity portfolio design for groups with the minimum variance strategy and equally weighted portfolio over a pool of 56 ETFs-listed on the Italian Stock Exchange-of eight different categories of specialisation. Empirical results confirm the usefulness of the group risk parity strategies in improving outcomes regarding diversification of risks among classes with good out-of-sample performance with respects to the target models.

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The comparative role of iShares and country funds in internationally diversified portfolios

Cited by 18 publications

References 58 publications

Diversification and the benefits of using returns standardized by range‐based volatility estimators

Diversification and the benefits of using returns standardized by range‐based volatility estimators

The international diversification benefits of U.S.‐traded equity products

Group Risk Parity Strategies for ETFs Portfolios

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