I'm a little late to this party, but as I was searching/thinking about this recently I thought I'd share what I found.
https://personal.vanguard.com/pdf/icriecr.pdfRegarding diversification benefits (page 6):
"the maximum historical diversification benefit would have been
achieved by allocating approximately 40% of an
equity portfolio to non-U.S. equities (although the
difference between 30% non-U.S. and 40% non-U.S.
is within 0.01%), with a net reduction in volatility of
75 basis points. Allocating 20% of an equity portfolio
to non-U.S. stocks would have captured 63 of those
75 basis points, or about 84% of the maximum
possible benefit. Allocating 30% to non-U.S. stocks
would have captured about 99% of the maximum
possible benefit."
Conclusion (page 13):
"In light of quantitative analysis and qualitative
considerations, we have demonstrated that
domestic investors should consider allocating
part of their portfolios to international securities,
and that a 20% allocation may be a reasonable
starting point. Although finance theory dictates
that an upper asset allocation limit should be based
on the global market capitalization for international
equities (currently approximately 58%), we have
demonstrated that international allocations exceeding
40% have not historically added significant additional
diversification benefits, particularly accounting for
costs. For many investors, an allocation between
20% and 40% should be considered reasonable,
given the historical benefits of diversification.
Allocations closer to 40% may be suitable for
those investors seeking to be closer to a marketproportional
weighting or for those who are hoping
to obtain potentially greater diversification benefits
and are less concerned with the potential risks and
higher costs. On the other hand, allocations closer
to 20% may be viewed as offering a greater balance
among the benefits of diversification, the risks of
currency volatility and higher U.S. to non-U.S. stock
correlations, investor preferences, and costs."
Of course the past is not the future etc. etc....