Analysis Of The Effectiveness Of The Internationalization Of The Stock Portfolio

There is a plethora of research literature about the diversification effect of stock portfolio overseas. Foreign research focus has developed from correlation analysis, co-integration test, and mean-variance efficient frontier spanning to size measurement of diversification benefits and assessment of the statistical significance of the benefits. Yet domestic research still remains at co-integration level due to isolation of domestic capital market from international markets and scarcity of financial instruments. The completion of equity split reform has pushed domestic capital market to globalize more, and the enforcement of QDII policy especially made an urgent call for deep research about the stock diversification benefits from the aspect of a Chinese investor.Answering to this need, this paper, based upon domestic stock index data, uses correlation analysis and co-integration test to pick some low-correlation countries globally, then construct a portfolio with respective stock indices with which a mean-variance efficient frontier is spanned. Then the diversification benefit would be visualized by comparing the efficient frontier and domestic stock index' s risk-return point on the return-variance plane. Besides, foreign research has introduced investment constraints (such as short selling, etc.) when studying diversification affects, thus, considering domestic capital market facts, this paper produce efficient frontiers with and without short selling constraint to explore its effect.This paper finds that diversification could enhance the risk-adjusted return for a domestic investor. Yet a QDII product managed by Minsheng Bank was forced to be liquidated, highlighting the importance of timing and portfolio components selection. The regulators should make available more target countries and financial instruments and deepen risk education among domestic investors.