Abstract
This article focusses on portfolio construction in markets where legislation restricts investors from investing in international markets. An extended market model is implemented to additionally estimate a component of foreign market risk. In the first part of the article the decomposition of the risk of securities on the Johannesburg Stock Exchange (JSE) is empirically demonstrated. In the second part an automated portfolio construction methodology based on the resulting foreign risk estimates of the model is empirically tested on the JSE. The results confirm there is potential for improving the performance of existing 'international' funds on the JSE using more rigorous quantitative approaches such as the one proposed here.
Highlights
The interest in 'international' or 'global' unit trusts was recently accentuated during March to June 1996 when the assets of international unit trusts grew 46.7% from R46l.8 million to R677.4 million
In most instances it is apparent that the local investment that make up this 90% typically consist of rand hedge shares, that is, shares of companies that operate off-shore or earn revenue off-shore
Because South African investors are restricted from investing abroad the ability to identify and select individual shares which are significantly related to movements in particular overseas markets based on
Summary
This article focusses on portfolio construct1~n .m ~ar \ed to estimate a component of foreign market risk. Is imp em_e~ f securities on the Johannesburg Stock Exchange (JSE) is em-. In the first part of the article the decompos1t1on of the:;s ~f I'o construction methodology based on the resulting foreign pirically demonstrated. In th~ seco~~ part an au~o:a~e f~E ~e results confirm there is potential for improving the perfriosrkmeasnticmeaotfeesx~isfti~nhge ~modetmela1ts1·oenmapl'1nfucnadll:~~st:e J~E using ~ore rigorous quantitative approaches such as the one proposed here. Author to whom correspondence should be addressed
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
