RT Journal Article
SR Electronic
T1 International Diversification: <em>The Weighting is the Hardest Part</em>
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 53
OP 62
DO 10.3905/jpm.2015.42.1.053
VO 42
IS 1
A1 Charles Braymen
A1 Robert R. Johnson
YR 2015
UL https://pm-research.com/content/42/1/53.abstract
AB Many traditional, international diversification approaches do not address the influence of economic integration and corresponding market correlations across countries. The authors develop a trade-adjusted weighting methodology that reduces the effect of economic integration on portfolio performance. Results demonstrate that the trade-adjusted portfolio outperforms a GDP-weighted portfolio in terms of risk-adjusted returns. Likewise, the trade-adjusted portfolio’s performance exceeds that of an equally weighted portfolio in most risk-adjusted measures. These results provide a strong argument for investment managers to use trade-adjusted weightings in forming portfolios and developing financial products.TOPICS: Global, portfolio construction, portfolio management/multi-asset allocation