Multinationals and the gains from international diversification

This paper employs mean–variance spanning tests to examine the diversification potential of multinational firms and foreign market indices from the perspective of investors in the G7 countries over the 1984–1995 period. We find evidence that multinational corporations may have provided diversification benefits for investors in Germany and the United States. We find that the addition of foreign market indices to a domestic portfolio—inclusive of multinationals—provided substantial diversification benefits in all countries. The economic importance of the shift of the portfolio frontier varied considerably across markets.