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Portfolio optimization at the frontier: Assessing the diversification benefits of African securities

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  • SENGA, Christian

Abstract

This study investigates the diversification benefits of African securities in comparison with other international investment opportunity sets from the perspective of a US investor. Using data from the most representative S&P Dow Jones traded indices of the US, other developed, emerging and African markets for the period of July 2014 - September 2018, I assess the benefits of diversification over these markets using the traditional and step-down tests of mean-variance spanning, and test the results' robustness by deviating from the normality assumption. My results show that, unlike their peers, African investment opportunity sets offer statistically significant diversification benefits to the benchmark US domestically-diversified minimum-variance and tangency portfolio. More specifically, I find that the "All Africa" set contributes to risk profile of the benchmark set while the "Africa ex-SA" is the only set offering significant improvements to this benchmark's tangency portfolio. These results bring additional evidence to the observation that countries with higher country-risk offer greater potential benefits of global diversification, which justifies to a significant extent the ongoing high appetite of international investors for African securities.

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  • SENGA, Christian, 2018. "Portfolio optimization at the frontier: Assessing the diversification benefits of African securities," Working Papers 2019001, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2019001
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    File URL: https://repository.uantwerpen.be/docman/irua/9a7993/156395.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    International diversification; Mean-Variance Spanning; Frontier markets; Africa;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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