Year: 2006
Type: report
Abstract: This paper evaluates the ability of U.S. investors to allocate their foreign equity portfolios across 44 countries over a 25-year period.We find that U.S. portfolios achieved a significantly higher Sharpe ratio than foreign benchmarks, especially since 1990.We test whether this strong performance owed to trading expertise or longer-term allocation expertise.The evidence is overwhelmingly against trading expertise.While U.S. investors did abstain from momentum trading and instead sold past winners, we find no evidence that these past winners subsequently underperformed.In addition, conditional performance measures, which directly test reallocating into (out of) markets that subsequently outperformed (underperformed), suggest no significant trading expertise.In contrast, we offer strong evidence of longer-term allocation expertise: If we fix portfolio weights at the end of 1989 and do not allow reallocations, we still find superior performance in the recent period.
DOI: 10.3386/w12346
Authors: Charles Thomas, Francis Warnock, Jon Wongswan
Institutions: National Bureau of Economic Research, University of Virginia
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funder: Darden School Foundation
OpenAlex ID: W1595655769