International Diversification for Brazilian Investors through Domestic Assets

Authors

DOI:

https://doi.org/10.51341/1984-3925_2017v20n3a2

Keywords:

international diversification, domestic assets, BDRs, funds, stocks

Abstract

We develop this study in order to analyze the benefits of international diversification through domestic assets for Brazilian investors. The sample contains three types of assets: the Brazilian Depositary Receipts (BDRs), the Brazilian investment funds that have part of their portfolios comprised of investments in foreign companies and stocks listed in the Brazilian capital market. Additionally, portfolios with ten different combinations of these assets were elaborated. We analyzed the data using correlation coefficients, risk-adjusted return and volatility measures. The results indicated that portfolios mainly comprised of BDRs presented the lowest correlation with the Brazilian market index, as well as the highest Sharpe ratio. The portfolios with the lowest volatility of returns were those majoritarily comprised of investment funds. This study contributes to the literature by analyzing some possible benefits of international diversification from the perspective of investors in an emerging country, since studies on this subject usually involve domestic investors from developed markets, especially from the United States.

Downloads

Download data is not yet available.

Author Biographies

Dermeval Martins Borges Junior, Universidade Federal de Uberlândia

Mestrando em Administração (FAGEN/UFU)

Rodrigo Fernandes Malaquias, Universidade Federal de Uberlândia

Doutorado em Administração de Empresas pela Fundação Getulio Vargas – FGV, São Paulo (Brasil). Professor dos cursos de Graduação, Mestrado e Doutorado em Ciências Contábeis da FACIC/UFU. Professor do Mestrado em Administração da FAGEN/UFU. E-mail: rodrigofmalaquias@yahoo.com.br

References

Arnold, T., Nail, L., & Nixon, T. D. (2004). Do ADRS enhance portfolio performance for a domestic portfolio?. Research in International Business and Finance, 18(3), 341-359.

Bailey, W., Kumar, A., & NG, D. (2008). Foreign Investments of U.S. Individual Investors: Causes and Consequences. Management Science, 54(3), 443-459.

Bekaert, G., & Harvey, C. R. (1997). Emerging equity market volatility. Journal of Financial Economics, 43(1), 29-77.

Berger, D., Pukthuanthong, K., & Yang, J. J. (2011). International diversification with frontier markets. Journal of Financial Economics, 101(1), 227-242.

Brière, M., & Signori, O. (2013). Hedging inflation risk in a developing economy: The case of Brazil. Research in International Business and Finance, 27(1), 209-222.

Brito, N. R. O. (1981). O efeito de diversificação de risco no mercado acionário brasileiro. Revista de Administração, 16(2), 69-107.

Caldeira, J. F., & Portugal, M. S. (2010). Estratégia Long-Short, Neutra ao Mercado e Index Tracking Baseadas em Portfólios Cointegrados. Brazilian Finance Review, 8(4), 469-504.

Castro, B. R., & Minardi, A. M. A. F. (2009). Comparação do desempenho dos fundos de ações ativos e passivos. Brazilian Finance Review, 7(2), 143-161.

Chang, E., Eun, C. S., & Kolodny, R. (1995). International diversification through closed-end country funds. Journal of Baking & Finance, 19(7), 1237-1263.

Charitou, A., Makris, A., & Nishiotis, G. P. (2006). Closed-End Country Funds and International Diversification. Multinational Finance Journal, 10(3), 251-276.

Chiou, W. J. P. (2008). Who benefits more from international diversification?. Journal of International Financial Markets, Institutions & Money, 18(5), 446-482.

Choi, Y. K., & Kim, D. (2000). Determinants of American Depositary Receipts and their underlying stock returns: Implications for international diversification. International Review of Financial Analysis, 9(4), 351-368.

Didia, D. O. (2015). Emerging Markets, American Depositary Receipts and International Diversification. Journal of International Business and Economics, 3(2), 43-50.

Driessen, J., & Laeven, L. (2007). International portfolio diversification benefits: Cross-country evidence from a local perspective. Journal of Banking & Finance, 31(6), 1693-1712.

Errunza, V., Hogan, K., & Hung, M. W. (1999). Can the Gains from International Diversification Be Achieved without Trading Abroad?. The Journal of Finance, 54(6), 2075-2107.

Gupta, R., & Donleavy, G. D. (2009). Benefits of diversifying investments into emerging markets with time-varying correlations: An Australian perspective. Journal of Multinational Financial Management, 19(2), 160-177.

Hatemi-J, A., & Roca, E. (2006). A re-examination of international portfolio diversification based on evidence from leveraged bootstrap methods. Economic Modeling, 23(6), 993-1007.

Jiang, C., Ma, Y., & An, Y. (2013). International diversification benefits: an investigation from the perspective of Chinese investors. China Finance Review International, 3(3), 225-249.

Kabir, M. H., Hassan, M. K., & Maroney, N. (2011). International diversification with American Depository Receipts (ADRs). Pacific-Basin Finance Journal, 19(1), 98-114.

Leal, R. P. C., Silva, A. L. C. da., Austin, M. (2000). Does this dog hunt? Testing the performance of the dogs of the dow strategy in the U.S. and in Brazil. International Journal of Finance, 12(4), 1896-1912.

Rubesam, A., & Beltrame, A. L. (2013). Minimum Variance Portfolios in Brazilian Equity Market. Brazilian Finance Review, 11(1), 81-118.

Santiago, D. C., & Leal, R. P. C. (2015). Equally Weighed Portfolios with Few Stocks and Small Investors. Revista de Administração Contemporânea, 19(5), 544-564.

Sukumaran, A., Gupta, R., & Jithendranathan, T. (2015). Looking at new markets for international diversification: frontier markets. International Journal of Managerial Finance, 11(1), 97-116.

Thapa, C., & Poshakwale, S. S. (2010). International equity portfolio allocations and transaction costs. Journal of Banking & Finance, 34(11), 2627-2638.

Wang, A. T., & Yang, S. (2004). Foreign exchange risk world diversification and Taiwanese ADRs. Applied Economics Letters, 11(12), 755-758.

You, L., & Daigler, R. T. (2010). Is international diversification really beneficial?. Journal of Banking & Finance, 35(1), 163-173.

Yuan, T., Gupta, R., & Roca, E. (2016). Why Not Diversify into Emerging Equity Markets via ADRs?. The Journal of Investing, 25(2), 18-27.

Downloads

Published

2017-12-18

How to Cite

Borges Junior, D. M., & Malaquias, R. F. (2017). International Diversification for Brazilian Investors through Domestic Assets. Journal of Accounting, Management and Governance, 20(3), 332–346. https://doi.org/10.51341/1984-3925_2017v20n3a2

Issue

Section

Articles