Country and Sector Drive Minimum-Volatility Investing in Emerging Markets Too

14 Pages Posted: 25 Jan 2014

See all articles by Sanne De Boer

Sanne De Boer

Voya Investment Management

James H. Norman

Goldman Sachs Asset Management

Date Written: December 23, 2013

Abstract

We find that the benefit of minimum-volatility (min-vol) investing in Emerging Markets can be earned through country and sector allocation in lieu of individual stock selection. The country-sector approach delivers implementation benefits such as lower turnover and more liquid holdings, which lowers transaction costs. To further test the importance of sector and country allocation we constrained a stock selection portfolio so that country and/or sector exposure matched the capitalization-weighted benchmark. Limiting active country and sector exposure significantly reduced risk-adjusted return. Our results confirm findings by De Boer et al. (2013) about country and sector effects for minimum-volatility investing in Developed Markets.

Keywords: minimum volatility, low volatility, emerging markets, equities, portfolio construction

JEL Classification: G12, G15

Suggested Citation

De Boer, Sanne and Norman, James H., Country and Sector Drive Minimum-Volatility Investing in Emerging Markets Too (December 23, 2013). Available at SSRN: https://ssrn.com/abstract=2384149 or http://dx.doi.org/10.2139/ssrn.2384149

Sanne De Boer (Contact Author)

Voya Investment Management ( email )

230 Park Avenue
13th Floor
New York, NY 10069
United States

James H. Norman

Goldman Sachs Asset Management ( email )

200 West Street
New York, NY 10282
United States

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