Impact of diversification on the distribution of stock returns: International evidence

Gordon Y N TANG, Daniel F.S. Choi

    Research output: Contribution to journalJournal articlepeer-review

    6 Citations (Scopus)


    In the past, stock returns are often assumed to be normally distributed. Potential gains from international portfolio diversification are thus based on a mean-variance framework. However, numerous empirical results reveal that stock returns are actually not normally distributed. Although previous studies found that both skewness and kurtosis can be rapidly diversified away, these results are only valid for a random sample of a given portfolio size. This paper studies the joint effect of diversification and intervaling on the skewness and kurtosis of eleven international stock market indexes with a holding period spanning from one to six months. A complete set of all possible combinations of portfolios is used. It is found that diversification does not reduce either skewness or kurtosis. As the portfolio size increases, portfolio returns become more negatively skewed and more leptokurtic. As a result, a rational investor may not gain from international diversification.

    Original languageEnglish
    Pages (from-to)119-127
    Number of pages9
    JournalJournal of Economics and Finance
    Issue number2-3
    Publication statusPublished - 1998

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics


    Dive into the research topics of 'Impact of diversification on the distribution of stock returns: International evidence'. Together they form a unique fingerprint.

    Cite this