Importance of style diversification for equity country selection

Stéphanie Desrosiers, Jean-François L'Her () and Jean-François Plante
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Jean-François L'Her: Caisse de dépôt et placement du Québec, Investment Policy Research

Journal of Asset Management, 2007, vol. 8, issue 3, No 5, 188-199

Abstract: Abstract Country selection strategies based on an individual fundamental (momentum) variable result in significant (nonsignificant) market risk-adjusted returns over the January 1988–July 2005 period. The marginal contribution of a single fundamental-oriented (momentum-oriented) variable to a group of fundamental (momentum) variables is low. Indeed, correlations among variables of the same portfolio management style are high. By contrast, when we combine fundamental-oriented and momentum-oriented variables to select countries, style diversification is important and the strategy delivers a significant market risk-adjusted return and a lower risk than either one of the fundamental-oriented or momentum-oriented strategies. Results are robust when we consider transaction costs and when we examine a longer sample period (1971–2005).

Keywords: country selection; fundamental-oriented variables; momentum-oriented variables; style diversification (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/palgrave.jam.2250074

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