In this paper, we analyze the gains from international diversification of investment portfolios from the Japanese as well as the U.S. perspectives. The major findings of this paper include: First, the 'potential' gains from international, as opposed to purely domestic, diversification are much...

We propose a new investment strategy employing "factor funds" to systematically enhance the mean-variance efficiency of international diversification. Our approach is motivated by the increasing evidence that size (SMB), book-to-market (HML), and momentum (MOM) factors, along with the market...