International diversification: The weighting is the hardest part

Charles Braymen, Robert R. Johnson

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)53-62
Number of pages10
JournalJournal of Portfolio Management
Volume42
Issue number1
DOIs
StatePublished - Sep 1 2015

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All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

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