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Exploring Diversification Benefits in Asia-Pacific Equity Markets

Author

Listed:
  • Mensah, Jones Odei
  • Premaratne, Gamini

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.

Suggested Citation

  • Mensah, Jones Odei & Premaratne, Gamini, 2014. "Exploring Diversification Benefits in Asia-Pacific Equity Markets," MPRA Paper 60180, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:60180
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    File URL: https://mpra.ub.uni-muenchen.de/60180/1/MPRA_paper_60180.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asia-Pacific Region; Sectoral diversification benefits; Relative Strength Ranking; Mean-Variance Spanning;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F3 - International Economics - - International Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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