HOW MANY INTERNATIONAL FUNDS MAKE A DIVERSIFIED PORTFOLIO?

Previous academic research on international mutual funds (IMFs) has concentrated on measuring performance of individual mutual funds in terms of their asset selection, timing, and diversification. None, however, have addressed the superiority of cross-IMF diversification, and no research has focused on the optimal number of IMFs in a diversified portfolio, or the marginal contributions to risk reduction of an additional IMF Based on Solnik's (1974) methodology, this short paper has shown that further risk reduction is attainable through cross-IMF investing, and complete effective international diversification is achieved with an average of eight IMFs per portfolio.