The impact of sectorial and geographical segmentation on risk-based asset allocation techniques

  • Received July 22, 2019;
    Accepted September 13, 2019;
    Published October 4, 2019
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.16(3).2019.24
  • Article Info
    Volume 16 2019, Issue #3, pp. 260-274
  • TO CITE АНОТАЦІЯ
  • Cited by
    2 articles
  • Funding data
    Funder name: Universita degli studi Di Brescia, Departamento di Economia & Management, VAT#01773710171
    Funder identifier:
    Award numbers:
  • 682 Views
  • 140 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

In the last decades, risk-based portfolio construction techniques have enjoyed a widespread diffusion in the financial community. This study aims at evaluating how these portfolio construction techniques produce different results depending on whether the segmentation of the stock market investment universe is based on sectorial or geographical criteria. An empirical analysis, applied on the global equity market, is carried out by making use of the typical and most advanced statistical and financial evaluation measures. Geographical segmentation is carried out in relation to the listing market, while sectorial segmentation is made in relation to the productive sectors to which individual companies belong. Our comparative analysis provides substantially coherent results, demonstrating a significant preference for the sectorial criterion compared to the geographic one. In conclusion, this result can be attributed to the subdivision of the investment universe into sectorial indices characterized by greater internal coherence and better external differentiation, in addition to the lower concentration of sectorial segmentation compared to the geographical one.

view full abstract hide full abstract
    • Table 1. Weights of the sectorial and geographic segmentation of the MSCI ACWI
    • Table 2. Descriptive statistics of the benchmarks’ excess returns
    • Table 3. The correlation matrix of the sectorial benchmarks’ excess returns
    • Table 4. The correlation matrix of the geographic benchmarks’ excess returns
    • Table 5. Tests of deviations from normality of the benchmarks’ excess returns
    • Table 6. Descriptive statistics of the portfolios’ excess returns
    • Table 7. Tests of deviations from normality for portfolios’ excess returns
    • Table 8. The risk-adjusted performance of the risk-based portfolios