Title: Assessing the impact of short-sale constraints on the gain from international diversification
Description: "This paper examines the impact of short-sale constraints on the magnitude of international diversification benefit for U.S.  investors during the period of 1976-1998.  The diversification benefit is measured as the increase in expected return when switching from the U.S.  equity index portfolio to the efficient international portfolio with equal variance.  Although short-sale constraints reduce the diversification benefit, we find that the reduction caused by the constraints on emerging markets is small.  This result holds in both pre- and post-liberalization periods.  They are also unaffected by the fact that the U.S.  index portfolio is not on the efficient frontier spanned by U.S.  securities"--Federal Reserve Bank of New York web site.
Subjects: American Investments