Abstract
The paper substantiates the intuitive argument for international portfolio diversification—diversification that is not limited to the developed markets, but also includes the corporate securities of less developed countries (LDCs). Such diversification, in light of all the available evidence, appears to be desirable from the standpoint of the investor.
Capital flows resulting from international diversification can tremendously improve liquidity position of the developing countries and provide a major development impact by increasing the probability of success of the capital market development programs being pursued by many LDCs; e.g., Brazil, Venezuela, Colombia, Indonesia, Nigeria, and Korea.
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*The author is Visiting Professor at McGill University, Montreal. This article is based on the author's Ph.D. dissertation, Graduate School of Business Administration, University of California, Berkeley (1974). He wishes to express deep appreciation for helpful comments and encouragement of Professors Barr Rosenberg, Richard Holton, and the late Professor Fred Breier. He would also like to thank the Capital Markets Department of the IFC in Washington, D.C., the Capital Group Inc. of Switzerland, Schools of B.A. at U.C. Berkeley, IMF in Washington, D.C., INCAE in Nicaragua, and numerous financial institutions of Brazil for research support at various stages of this work. Generous help was provided by Professor Haim Levy and Dr. Antonio Chagas Meirelles.
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Errunza, V. Gains from Portfolio Diversification into Less Developed Countries' Securities. J Int Bus Stud 8, 83–100 (1977). https://doi.org/10.1057/palgrave.jibs.8490688
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DOI: https://doi.org/10.1057/palgrave.jibs.8490688