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Importance of style diversification for equity country selection

Author

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  • Stéphanie Desrosiers
  • Jean-François L'Her

    (Caisse de dépôt et placement du Québec, Investment Policy Research)

  • Jean-François Plante

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).

Suggested Citation

  • Stéphanie Desrosiers & Jean-François L'Her & Jean-François Plante, 2007. "Importance of style diversification for equity country selection," Journal of Asset Management, Palgrave Macmillan, vol. 8(3), pages 188-199, September.
    • Handle: RePEc:pal:assmgt:v:8:y:2007:i:3:d:10.1057_palgrave.jam.2250074
    DOI: 10.1057/palgrave.jam.2250074
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    References listed on IDEAS

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