Exploring Diversification Benefits in Asia-Pacific Equity Markets

Jones Odei-Mensah () and Gamini Premaratne ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the benefits of regionally and globally diversified portfolios from the perspective of investors holding domestic-only portfolios from different Asia-Pacific countries. Three groups of regional portfolio are constructed, with sorting based on relative strength ranking technique of Levy (1967). The step-down spanning technique is employed to uncover evidence that the global minimum-variance portfolio of a local investor can be improved by investing regionally or globally, but the evidence that the tangency portfolio can be improved is weak in all cases. The results also show an increase in Sharpe ratio when the investor invests regionally or globally but this benefit declines under the assumption of short-selling. The paper concludes that there are gains in diversifying globally but higher gains are realized by investing regionally.

Keywords: Asia-Pacific Region; Sectoral diversification benefits; Relative Strength Ranking; Mean-Variance Spanning (search for similar items in EconPapers)
JEL-codes: C10 F3 G11 G15 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-fmk and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:60180

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