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Achieving International Diversification with U.S. Multinational Equities

Achieving International Diversification with U.S. Multinational Equities. BA453 ․ Professor Harvey February 26, 1999 Rain Man Asset Management Rob Christensen Monte Combe Jeff Kip Mike McDuffie Amjad Muasher. Company Selection.

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Achieving International Diversification with U.S. Multinational Equities

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  1. Achieving International Diversification with U.S. Multinational Equities BA453 ․ Professor Harvey February 26, 1999 Rain Man Asset Management Rob Christensen Monte Combe Jeff Kip Mike McDuffie Amjad Muasher

  2. Company Selection • 150 largest U.S. equities (by market cap) with returns from 1/93 to 12/98 • Sorted into three portfolios (high, middle, low) by ratio of foreign sales to total sales

  3. Company Selection • Selection problems- Traceability of foreign revenue- Industry selection bias • Industries removed from sample:- Financial services except for insurance- Utilities- Telecommunications

  4. Tests for Diversification Benefits

  5. Tests for Diversification Benefits

  6. Tests for Diversification Benefits

  7. Selection Bias • Each portfolio beats the U.S. equity return • “winner’s bias” from selecting only largest market capitalization equities

  8. Conclusion • No diversification from buying “diversified” U.S. Equities

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