Geographic Versus Industry Diversification: Constraints Matter

52 Pages Posted: 27 Apr 2005

Date Written: January 2005

Abstract

This research addresses whether geographic diversification provides benefits over industry diversification. In the absence of constraints, no empirical evidence is found to support the argument that country diversification is superior. With short-selling constraints, however, the geographic tangency portfolio is not attainable by industry portfolios. Results with upper and lower constraints on portfolio weights as well as an out-of-sample analysis show that geographic diversification almost consistently outperforms industry portfolios, although we cannot establish statistical significance.

Keywords: Diversification gains, EMU, geographic diversification, industry diversification, block-bootstrap tests

JEL Classification: G11, G15

Suggested Citation

Ehling, Paul and Ramos, Sofia Brito, Geographic Versus Industry Diversification: Constraints Matter (January 2005). Available at SSRN: https://ssrn.com/abstract=631673

Paul Ehling (Contact Author)

BI - Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410505 (Phone)

Sofia Brito Ramos

ESSEC ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

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