THE BENEFITS FROM INTERNATIONAL DIVERSIFICATION FOR NORDIC INVESTORS

In this paper, we investigate the magnitude of the benefits from inter national diversification from the Nordic point of view. Special attent ion is paid to whether potentially increased co-movement of stock mark ets together with more volatile Nordic currencies have resulted in dec reased benefits from international diversification towards the end of the 1980s. Moreover, the paper presents evidence on the benefits from international diversification for a currency which has recently starte d its free float, the Finnish markka (FIM). We Fmd significant increas es in stock market co-movement. Both unhedged ex ante strategies as we ll as strategies hedged for exchange rate risk are investigated, revea ling substantial benefits from international diversification for the N ordic countries. However, we obtain mixed results concerning the quest ion of the optimality of hedging.