Impact of Portfolio Performance on International Portfolio Diversification

Abstract

Investment opportunity is what we all are looking for every now and then, avenues that can generate maximum return with minimum of risk. International Portfolio diversification may not fulfill aspiration of investors with globalization spreading its wings in each sphere of economic activity. The study has been conducted from the perspective of Indian Investor taking into account 22 foreign markets (11 emerging and 11 developed). The countries have been selected from two points of view; firstly on the basis of market capitalization and secondly on the basis of availability of data. Emerging markets chosen for the study contribute more than 80% in Emerging market Index which is sufficient to generalize the results to the whole. Geographical regions have also been taken into consideration in order to benefit from regional diversification; these are Asia-pacific with 13 markets, 8 markets from Europe, 3 from Latin America and USA. Firstly, portfolios with different investment objective would be chosen on the basis of sampled countries. Then testing co-integration study would help in elimination of those countries generating co-integrating vector. Hence, Indian investor would be benefited by the study to find out whether globally diversified portfolio is better or not as compared to domestic portfolio. International portfolio diversification can be suggested for Indian investor in the wake of its performance during structural breaks.