The benefits of international diversification: Re-examining the effect of market allocation constraints

This paper makes adjustments to the data, methods and perspective as presented in Chiou (2008) to report lower potential benefits from international diversification for U.S. investors during the previously reported 1988-2004 investment period. The extended results for 1988-2014 are also presented. Naive international diversification is not found to provide positive return-to-risk (RR) gains or volatility reducing benefits versus the U.S. market. Portfolios optimized with no short sales and weakened weight constraints on positive market allocations can provide RR gains and volatility reducing benefits. The positive RR benefits from diversification out of the U.S. market portfolio are not found to be statistically significant for both periods measured.