Date of this Version


Document Type

Discussion Paper

Publication Details

Cheol S. Eun and Bruce G. Resnick (1991) International Diversification of Investment Portfolios: US & Japanese Perspectives

The authors are grateful to Salomon Brothers, Inc. for providing the bond data in this study.

School of Business Discussion Paper ; No. 18, Dec. 1991

© Copyright Cheol S. Eun and Bruce G. Resnick and the School of Business, Bond University


In this paper, we analyze the gains from international diversification of investment portfolios from the Japanese as well as the U.S. perspectives. The major findings of the paper include: First, the 'potential' gains from international, as opposed to purely domestic, diversification are much greater for U.S. investors than for Japanese investors. For U.S. investors, the gains accrue not so much in terms of lower risk as in terms of higher return, and the opposite holds for Japanese investors. Second, using various 'ex ante' international investment strategies designed to control parameter uncertainty, U.S. investors can realize substantial gains from international diversification in out-of-sample periods. Japanese investors, however, can gain little. Third, hedging exchange risk generally allows the U.S., but not Japanese, investors to benefit more from international diversification. For U.S. investors, the international bond diversification with exchange risk hedging offers a superior risk-return trade-off than the international stock diversification, with or without hedging.

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