TY - JOUR T1 - Does Modern Portfolio Theory Need an Update? <em>Analyzing Single-Country ETFs During Extreme Market Movements</em> JF - The Journal of Index Investing SP - 85 LP - 97 DO - 10.3905/jii.2014.5.2.085 VL - 5 IS - 2 AU - William F. Johnson AU - Qin Lian Y1 - 2014/08/31 UR - https://pm-research.com/content/5/2/85.abstract N2 - This article investigates whether country characteristics can determine diversification benefits provided by single-country exchange traded funds (ETFs) to U.S.-based investors during crises and non-crises periods. We find several country-specific characteristics, including prior correlation, foreign direct investment, GDP growth rate, inflation rate, and inclusion in the G7 are significant in explaining diversification benefits during non-crises periods.We find that most of the coefficients lose significance during the crises periods in both raw and contagion corrected models, proving the choice of which international funds to invest is difficult for investors in today’s global financial marketplace. This study finds that investors seeking protection from extreme U.S. market returns are not able to identify which single-country ETFs will serve to diversify their portfolios during extreme market movements using easily accessible finance and economic variables. The results of this study further complicate the decisions investor face in creating a well-diversified portfolio and serve as a warning to individual investors and managers attempting to determine which country single-country ETFs will provide diversification benefits using traditional estimation tools.TOPICS: Exchange-traded funds and applications, developed, portfolio theory ER -