An empirical examination of the diversification benefits of U.K. international equity closed-end funds |
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| Institution: | 1. Centre for Risk Research, Southampton Business School, University of Southampton, Southampton, SO17 1BJ, UK;2. School of Economics, Finance and Management, University of Bristol, Bristol, BS8 1TU, UK;1. Department of Applied Informatics, University of Macedonia, 156 Egnatia str., P.O. Box 1591, 54636 Thessaloniki, Greece;2. School of Economics, Business Administration and Legal Studies, International Hellenic University, 14th klm Thessaloniki-Moudania, 57001 Thessaloniki, Greece |
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| Abstract: | I use the Bayesian approach of Wang (1998) to examine the diversification benefits of international equity U.K. closed-end funds (CEF) in the presence of market frictions. No short selling constraints substantially reduce, and in some cases eliminate the diversification benefits of CEF. However, adjusting for higher trading costs in the benchmark assets, the diversification benefits of the funds are significant. The paper also finds that when comparing to the international equity exchange-traded funds (ETF), that both groups of funds are necessary to maximize the benefits of international diversification. |
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