Oops, we should have diversified!

Abstract

This article extends the research on the improvements to the efficient portfolio frontier in globally diversified portfolios. We examine efficient frontiers of regional equity portfolios from developed and undeveloped countries. We show that a globally diversified portfolio has higher reward with less risk than individual regional portfolios. We also show that, in the past 8 years, a US investor would have achieved higher returns for the same risk if diversified in emerging and frontier markets. These results have implications for practical portfolio selection as well as empirical applications of Capital Asset Pricing Model (CAPM).

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