Portfolio Diversification Across Segmented Financial Markets

Anderson, Derek, Systems Engineering - School of Engineering and Applied Science, University of Virginia
Scherer, William, Department of Systems and Information Engineering, University of Virginia
Bailey, Robert, Department of Systems and Information Engineering, University of Virginia
Peterson, Steven, Department of Economics, University of Virginia

Regional price to earnings ratios, aggregated at the industry level for a country or geographic region, possess forward-looking information regarding volatility-reducing diversification based on a test-control paired experiment using random selection to form portfolios. Market segmentation theory proposes that segmented financial markets are subject to different shocks than internationally integrated financial markets. Multiple performance metrics are analyzed, and correlation of diversification holdings with pre-existing assets varies directly with increased growth opportunities and segmentation measures as defined by Bekaert, Harvey, Lundblad, and Siegel (2007 and 2011). The randomized portfolio experiment developed in this work is ripe for extension and customization as a tool to aid in portfolio management.

MS (Master of Science)
Random Portfolios, Diversification Premums, Financial Market Segmentation
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