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美国经济论文定制I examine whether domestic traded portfolio can mimic foreign indices so that to prove investing abroad is not the necessary precondition to achieve international diversification benefits. US investors can achieve the gains from international diversification by investing in American depositary receipts instead of trading in foreign securities.
I use monthly data from 1997 to 2007 for 7 emerging markets and 7 developed markets, and also data of 12 industry portfolios, 28 multinational corporation returns and ADRs. Return Correlations, mean-variance spanning, and Sharpe ratio tests are used to examine the statistical and economical significance of home-made diversification. The results prove that US investors can achieve international diversification benefits domestically.

Executive Summary

We all know that investing in security market is risky while well-diversified portfolios can reduce the riskiness. It is an established fact that investors avoid to invest within domestic market of home country or securities of similar corporations. The risk of a portfolio depends not only on the number of securities that the portfolio contains, but also on the degree that each security are independent of each other. International diversification benefits refer to construct portfolios in securities that are traded in various countries in order to reduce risk, especially political risk.
Existing studies in this filed focus on verifying the statistical and economical significance of international diversification benefits and calculating the degree of the gains, no matter considering short-sale constraints or not, considering integration or not. In summary, the studies probe into whether international diversification benefits can be achieved by investing in global security markets. Howbeit, few literatures discuss whether investors can attain gains from international diversification domestically. The aim of this paper is to fill the gap.
This paper investigates the ability of home-made diversified portfolios to mimic returns from foreign market in order to examine whether investing abroad is the necessary precondition to obtain international diversification benefits. The empirical finding reveals that gains from international diversification exist. In the position of a US investor, home-made portfolios can achieve benefits, but cannot totally substitute international diversification benefits. Moreover, the study also suggests that investing in developed markets is less risky but can achieve lower return than investing in emerging market.
This study is limited by time and data sources. Therefore, further study may investigate international diversification benefits by using different methodologies and in perspective of investors from different countries all over the world.

Acknowledgements

This dissertation will not be completed without hard effort and great support from many people.
First of all, I would like to thank Dr. Frankie Chao, my supervisor, for being so helpful from the beginning to the end of my dissertation. His kind support and valuable advices have been highly appreciated. I also would like to thank all academic supporters at Durham Business School for their excellent suggestions regarding my academic and technical difficulties.

Contents
Abstract I
Executive Summary II
Acknowledgements III
Chapter 1 Introduction 1
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