Equity Market Segmentation in Risk-Based Portfolio Construction Techniques

The impact of sectorial and geographical segmentation on risk-based asset allocation techniques

Investment Management and Financial Innovations ◽

10.21511/imfi.16(3).2019.24 ◽

2019 ◽

Vol 16 (3) ◽

pp. 260-274

Author(s):

Ignazio Basile ◽

Pierpaolo Ferrari ◽

Guido Abate

Keyword(s):

Asset Allocation ◽

Equity Market ◽

Portfolio Construction ◽

Financial Evaluation ◽

Significant Preference ◽

Construction Techniques ◽

Internal Coherence ◽

Stock Market Investment ◽

The Impact ◽

Made In

In the last decades, risk-based portfolio construction techniques have enjoyed a widespread diffusion in the financial community. This study aims at evaluating how these portfolio construction techniques produce different results depending on whether the segmentation of the stock market investment universe is based on sectorial or geographical criteria. An empirical analysis, applied on the global equity market, is carried out by making use of the typical and most advanced statistical and financial evaluation measures. Geographical segmentation is carried out in relation to the listing market, while sectorial segmentation is made in relation to the productive sectors to which individual companies belong. Our comparative analysis provides substantially coherent results, demonstrating a significant preference for the sectorial criterion compared to the geographic one. In conclusion, this result can be attributed to the subdivision of the investment universe into sectorial indices characterized by greater internal coherence and better external differentiation, in addition to the lower concentration of sectorial segmentation compared to the geographical one.

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Foreign exchange risk pricing and equity market segmentation in Africa

Journal of Banking & Finance ◽

10.1016/j.jbankfin.2011.01.033 ◽

2011 ◽

Vol 35 (9) ◽

pp. 2295-2310 ◽

Cited By ~ 33

Author(s):

Odongo Kodongo ◽

Kalu Ojah

Keyword(s):

Foreign Exchange ◽

Market Segmentation ◽

Equity Market ◽

Foreign Exchange Risk ◽

Exchange Risk ◽

Risk Pricing

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International Real Estate Review

International Real Estate Review ◽

10.53383/100233 ◽

2017 ◽

Vol 20 (1) ◽

pp. 1-21

Author(s):

Greg MacKinnon ◽

◽

Jon Spinney ◽

Keyword(s):

Real Estate ◽

Equity Market ◽

Portfolio Performance ◽

Real Estate Investment ◽

Construction Techniques ◽

Time Period ◽

High Volatility ◽

Weighted Portfolio ◽

Portfolio Design ◽

Better Than

We examine the market for U.S. equity real estate investment trusts (REITs) for evidence of the volatility effect, in which low volatility stocks tend to outperform high volatility ones, as has been found in the general equity market by prior research. While there is some evidence of a volatility effect in the first ten years of the sample, this disappears in a more recent time period. Furthermore, we test the efficacy of low risk portfolio construction techniques and find that none perform any better than a market cap weighted portfolio ¡V although they are also no worse ¡V over any of the time periods examined. Thus, there is no evidence that using a risk-based portfolio design that emphasizes low volatility would improve portfolio performance for a REIT allocation.

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