International equity diversification and shortfall risk |
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| Institution: | 1. Department of Finance and Accounting, University of Tunis El Manar, Tunis, Tunisia;2. Energy and Sustainable Development (CESD), Montpellier Business School, Montpellier, France;3. COMSATS Institute of Information Technology, Islamabad, Pakistan;4. Lebow College of Business, Drexel University, Philadelphia, United States;5. College of Business and Economics, Qatar University, Qatar;6. Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (Szabist), Islamabad, Pakistan;7. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman |
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| Abstract: | International equity diversification benefits Canadian investors very substantially by reducing shortfall risk, as shown by results of a model that minimizes the risk of shortfall from a desired consumption level for a retired investor with an unknown date of death and stochastic investment returns. It does not benefit American investors materially. The United States equity market is a large proportion of the international equity market that is available to individual investors, and United States returns are highly correlated with other markets. |
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