تخصیص پرتفوی و بازارهای سهام در حال ظهور اروپا مرکزی

We examine the issue of possible diversification benefits into three leading Central European equity markets. We construct portfolios for both US and German investors using various optimization models and several risk measures. We then compare the portfolio out-of-sample performance using Sharpe ratios and the Jobson–Korkie statistic. Our results show that diversification benefits are statistically significant for US investors, but not for German investors. Optimized portfolios based on lower partial moments exhibit less diversification into the Central European markets than those based on standard deviations. Overall, we show that investors could have benefited from diversifying into the Central European equity markets.

Investors in developed countries have gradually diversified more heavily into emerging markets, given the well-documented potential benefits from international portfolio diversification. However, the currency crises and other macroeconomics issues experienced in recent years in many security markets of Asia and Latin America have led investors to consider other emerging markets, such as those in Central Europe. Their moderate correlations and absence of long-term comovements with developed equity-market returns can lead to lower portfolio risk. Furthermore, in contrast to most equity markets, those of Central Europe have performed well in recent years. For example, the Czech and the Hungarian equity markets rose 40.9% and 28.9% in 2002, respectively; both, along with Poland, advanced strongly through most of 2003. Finally, these Central European countries, along with several others, became full members of the European Union (EU) and the European Monetary Union (EMU) on May 1, 2004. These developments have the potential to positively affect their economies and equity markets. The purpose of this paper is to investigate the question of possible diversification benefits into the three most developed Central European equity markets: those of the Czech Republic, Hungary, and Poland. Among the first to be re-established after the demise of communism in the area, these markets have undergone extensive liberalization and they have the largest market capitalizations. In particular, we examine the issue of possible diversification benefits from the viewpoint of investors both within and outside the EU. The German equity market is the predominant player within the European Union; we have therefore selected it as representative for investors in the more developed countries of the EU. For representative investors outside the EU, we selected the US, as the economic and geopolitical relations of the US with the Central European countries are not as strong. We construct portfolios for both US and German investors, based on weekly data over the 1995–2000 period, using various optimization models and several measures of risk. We then compare the out-of-sample performance of the constructed portfolios over the 2000–2003 period employing Sharpe ratios and the Jobson–Korkie (1981) statistical pairwise test of equality of Sharpe ratios. In addition, we construct optimized portfolios based on an asymmetric risk measure, referred to as the lower partial moment (LPM), which is being used increasingly in the literature involving nonnormality issues in emerging equity market. The Markowitz mean-variance portfolio optimization approach assumes normality unless investors have a special type of utility function (the quadratic utility function). Bekaert and Harvey, 1995 and Bekaert and Harvey, 1997, Bekaert et al. (1998), and Stevenson (2000), among others, question the assumption of normality of returns in emerging markets and find that skewness and kurtosis are present and the return distributions cannot be completely described by the mean and variance. Our results indicate that, for US investors, naively or optimally diversifying into the Central European equity markets significantly outperforms investing solely in the home market. For German investors a naïve diversification strategy yields results superior to any optimized portfolio. The results based on optimized portfolios suggest considerably less diversification into Central European equity markets than an equally weighted portfolio, especially for US investors. In addition, the results based on the lower partial moment as a measure of risk for optimizing portfolios are similar to those based on the standard deviation as the risk measure. As expected, the optimized portfolios based on the downside risk measure prescribe less investment in the emerging equity markets. Overall, our results support the conclusion that US and German investors could benefit from diversifying into the Central European equity markets. The remainder of the paper is organized as follows. Section 2 discusses the relevant literature and highlights the contribution made by this study. The data are described in Section 3, and Section 4 briefly explains the methodology used. Section 5 presents the empirical results and Section 6 contains the concluding remarks.

This paper examines the question of possible diversification benefits in the Czech, Hungarian, and Polish equity markets, the three largest Central European markets. More specifically, we address two important problems that have an impact on portfolio out-of-sample performance: estimation error and nonnormality of returns. First, to reduce the problem of estimation error, we constructed three portfolio models in addition to the standard tangency model. We find that for US investors the Bayes-Stein model produces the best Sharpe ratio, while for German investors the naïve portfolio outperforms alternative models. Second, we use an asymmetric risk measure, the lower partial moment, in addition to the standard deviation to measure portfolio risk. This is particularly important for research on emerging markets, which typically exhibit nonnormality of returns. The LPM is theoretically sound and focuses on the downside risk that investors particularly wish to avoid. We find that the use of the lower partial moment produces a higher Sharpe ratio only in the case of the Bayes-Stein model. Overall, our results indicate that an international diversification strategy into the Central European stock markets is the preferred strategy for US and German investors. Our results support the finding of Stevenson (2000) that as much as 20–25% can be invested in these emerging markets. Although our results suggest that an even greater investment proportion be allocated to the Central European markets, this is probably more than most investors would be willing to allocate to the region. Nevertheless, the reemergence of the leading Central European equity markets in the 1990s, the relatively low short-term correlations as well as the lack of cointegration between these markets and developed equity markets, the stability of their currencies, their prospects for future economic growth and the positive impact associated with their recent accession to the EU and the EMU have provided new investment opportunities for US and German investors active in emerging markets.