International Diversification Investment and Its Impact on Chinese Investors

September 04, 2011

International diversification investment strategies such as investing in foreign securities market and establishing global investment portfolio have become more and more accepted by world major stock market countries and gained return (Huberman and Kandel (1987), Bekaert and Urias (1996), DeRoon, Nijman, and Werker (2001), and Li et al. (2003).
As a comparison, investors in emerging markets have less experience in international diversification investment. Given to short history and immature mechanism of emerging market, investors are facing high investment risk , less options of financial products and more investment limitations. All of these factors make investors unable to build up international diversification portfolio. Thus, to invest in global securities market and build up international diversification portfolio is very important to emerging markets investors （Driessen and Laeven, 2007; Chiou, 2008; Lagoarde-Segot and Lucey, 2007）.
With the opening of China financial market, especially the implementation of QDII, some Chinese investors could invest directly to overseas financial market and gain global returns.  But under QDII regulation, investors have upper limit of foreign exchange amount and foreign investment only accounts for a small portion in their portfolio. 
This paper empirically tests whether Chinese investors could benefit from foreign stock market investment and discuss the necessity and importance of expanding international diversification investment to Chinese investors.