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Portfolio allocations in the Middle East and North Africa

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  • Thomas Lagoarde-Segot
  • Brian M. Lucey

Abstract

We examine the issue of possible portfolio diversification benefits into seven Middle-Eastern and North African (MENA) stock markets. We construct international portfolios in dollars and local currencies. We compute the ex-ante weights by plugging five optimization models and two risk measures into a rolling block-bootstrap methodology. This allows us to derive 48 monthly rebalanced ex-post portfolio returns. We analyze the out-of-sample performance based on Sharpe and Sortino ratios and the Jobson-Korkie statistic. Our results highlight outstanding diversification benefits in the MENA region, both in dollar and local currencies. Overall, we show that these under-estimated, under-investigated markets could attract more portfolio flows in the future.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp141.

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Date of creation: 25 May 2006
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Handle: RePEc:iis:dispap:iiisdp141
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Keywords: Portfolio Allocation; Emerging Markets; Middle East and North Africa.;

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