Diversification Benefits of Emerging Markets Subject to Portfolio Constraints

Li, Kai; Sarkar, Asani; Wang, Zhenyu

doi:10.2139/ssrn.272928

Cited by 73 publications

(101 citation statements)

References 45 publications

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“…Figure 1 shows the CC frontiers found by the MOEA on the EM asset set, the CC frontiers rapidly approaching the UC frontier (also shown) as k is increased. Using the methodology described in [10], coupled with methods developed in the Table 1. Cardinality for which the CC is not significantly better than the UC segment.…”

Section: Resultsmentioning

confidence: 99%

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Cardinality Constrained Portfolio Optimisation

Fieldsend

Matatko

Peng

2004

Lecture Notes in Computer Science

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The traditional quadratic programming approach to portfolio optimisation is difficult to implement when there are cardinality constraints. Recent approaches to resolving this have used heuristic algorithms to search for points on the cardinality constrained frontier. However, these can be computationally expensive when the practitioner does not know a priori exactly how many assets they may desire in a portfolio, or what level of return/risk they wish to be exposed to without recourse to analysing the actual trade-off frontier. This study introduces a parallel solution to this problem. By extending techniques developed in the multi-objective evolutionary optimisation domain, a set of portfolios representing estimates of all possible cardinality constrained frontiers can be found in a single search process, for a range of portfolio sizes and constraints. Empirical results are provided on emerging markets and US asset data, and compared to unconstrained frontiers found by quadratic programming.

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Section: Resultsmentioning

confidence: 99%

“…In the preliminary proof of concept study here, we solely concentrate on the global minimum variance portfolio. This frees us from the difficulty of having to estimate expected returns on the portfolio [10]. To actually evaluate the performance of our historically optimal CC portfolio we use a bootstrapping technique.…”

Section: Resultsmentioning

confidence: 99%

Cardinality Constrained Portfolio Optimisation

Fieldsend

Matatko

Peng

2004

Lecture Notes in Computer Science

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“…Subsequently the benefits of international diversification have been documented by researchers over several decades (to name a few see, French & Porterba, 1991;Obstfeld, 1994;Cosset & Suret, 1995;Harvey, 1995;Novomestky, 1997;De Roon, Nijman & Werker, 2001;Li, Sarkar & Wang, 2003;Chiou, 2009;Bouslama & Ouda, 2014). Many of these studies build on the pioneering work of Markowitz (1952), which shows how combining uncorrelated assets can reduce the average volatility of a portfolio.…”

Section: International Studiesmentioning

confidence: 99%

“…This topic has attracted considerable attention over the last few decades (see for example, Divecha, Drach & Stefek, 1992;DeFusco, McLeavey, Pinto & Runkle, 1996;Michaud, Bergstrom, Frashure & Wolahan, 1996;Meric & Meric, 1997). More recently Li et al (2003) showed that even though markets were becoming more integrated, this integration does not eliminate the benefit of diversifying into emerging markets.…”

Section: International Studiesmentioning

confidence: 99%

Raising the bar on the foreign portfolio to 25 per cent: Strategic implications for South African investors

Bradfield

Munro

2015

S. Afr. j. econ. manag. sci.

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Regulation 28 of the Pension Funds Act now permits an increased allocation of 25 per cent to foreign investments. The regulation previously only permitted a 20 per cent allocation. Establishing the optimal foreign allocation for South African portfolio managers given the 25 per cent upper bound is an important consideration for strategic portfolio planning. In this paper we consider two methodological approaches to establish a strategic foreign allocation weight. Our first approach considers the strategic role of foreign investment in South African global balanced portfolios by using a mean-variance efficient frontier framework over a long-term period. We also implement a second assessment methodology that utilises a nonparametric procedure. Both the mean-variance and the non-parametric methodology yield compelling evidence for the foreign allocation to be set at the maximum allowable bound of 25 per cent.

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“…Furthermore, over the years, developing markets have illustrated rapid financial, economic and developmental growths (Groot, Pang, and Swinkels, 2012;Li, Sarkar, and Wang, 2003). Groot et al (2012) found that investing in a frontier markets tend to significantly extend the mean-variance efficient frontiers and provides investment opportunities which yield higher returns.…”

Section: Introductionmentioning

confidence: 99%