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Are Euro Area Small Cap Stocks an Asset Class? Evidence from Mean-Variance Spanning Tests

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  • Giovanni Petrella
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    Abstract

    "In this paper we perform regression-based tests for mean-variance spanning in order to detect the effect of investing in euro area small capitalisation stocks on the minimum variance frontier, and apply different measures to assess the extent of diversification gains. Empirical analysis shows that euro area small and mid cap stocks, as classified by size quartile and quintile rankings, arise as truly autonomous asset classes. This result is robust to different methodologies used to form size-based portfolios, and holds relative to both euro area large cap stocks and other international asset classes, US small capitalisation stocks included". Copyright Blackwell Publishing Ltd, 2005.

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    Bibliographic Info

    Article provided by European Financial Management Association in its journal European Financial Management.

    Volume (Year): 11 (2005)
    Issue (Month): 2 ()
    Pages: 229-253

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    Handle: RePEc:bla:eufman:v:11:y:2005:i:2:p:229-253

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    Cited by:
    1. Wolff, Dominik & Bessler, Wolfgang & Opfer, Heiko, 2012. "Multi-Asset Portfolio Optimization and Out-of-Sample Performance: An Evaluation of Black-Litterman, Mean Variance and Naïve Diversification Approaches," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62020, Verein für Socialpolitik / German Economic Association.
    2. Galvani, Valentina & Plourde, André, 2013. "Spanning with futures contracts," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(1), pages 61-72.
    3. Massimo Guidolin & Giovanna Nicodano, 2005. "Small Caps in International Equity Portfolios: The Effects of Variance Risk," CeRP Working Papers 41, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    4. Wolfgang Bessler & Julian Holler & Philipp Kurmann, 2012. "Hedge funds and optimal asset allocation: Bayesian expectations and spanning tests," Financial Markets and Portfolio Management, Springer, vol. 26(1), pages 109-141, March.
    5. Massimo Guidolin & Giovanna Nicodano, 2007. "Managing international portfolios with small capitalization stocks," Working Papers 2007-030, Federal Reserve Bank of St. Louis.

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