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Citation

McMillan D, Kambouroudis D & Huang R (2025) Is Portfolio Diversification Still Effective: Evidence Spanning Three Crises from the Perspective of U.S. Investors. Journal of Asset Management.

Abstract
This paper uses over twenty years of data to examine diversification benefits for U.S. investors through assessing different portfolio opportunities, including a stock (60%)-bond (40%) portfolio, an internationally diversified stock portfolio, and a cross-asset diversified portfolio compared with investing only in the U.S. stock market. Our data set consists of three stock indices (S&P 500, MSCI EAFE, and MSCI EM) and three assets (Gold, Oil, and Bonds). Portfolios are built using both equal- and mean-variance efficient-weights and are compared primarily using the Sharpe ratio. The results indicate that before 2009, U.S. investors could benefit from an internationally diversified stock portfolio. However, since 2009, this international stock portfolio is less likely to benefit U.S. investors. In contrast, the cross-asset diversified portfolio does provide greater benefit and outperforms the U.S only, the stock-bond portfolio, and the international stock portfolio over different time periods. Of note, the mean-variance efficient portfolio weighting outperforms the equal-weighted portfolio. Overall, a portfolio consisting of the S&P500 Index, gold, oil, and U.S. 10-year Treasury Note is the preferred option for U.S. investors.

Keywords
Stocks; Diversification; International; Cross-assets

• Is Portfolio Diversification Still Effective: Evidence Spanning Three Crises from the Perspective of U.S. Investors