The Small-Country Effect Revisited

In an earlier study, Keppler and Traub showed that the smaller national equity markets in the MSCI Developed Markets universe returned 19.19% compounded annually during the 16 1/2 years from Dec 31, 1975, through Jun 30, 1992. Now, more than 18 years later, the authors revisit the concept of investi...

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Bibliographic Details
Published inJournal of Investing Vol. 20; no. 4; pp. 99 - 103
Main Authors Keppler, Michael, Encinosa, Peter
Format Journal Article Trade Publication Article
LanguageEnglish
Published London Pageant Media 01.12.2011
Subjects
Capitalization
Equity
Equity funds
Investments
Portfolio diversification
Portfolio management
Rates of return
Stock exchanges
Studies
Volatility
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Summary:In an earlier study, Keppler and Traub showed that the smaller national equity markets in the MSCI Developed Markets universe returned 19.19% compounded annually during the 16 1/2 years from Dec 31, 1975, through Jun 30, 1992. Now, more than 18 years later, the authors revisit the concept of investing in national equity markets based solely on their size as measured by their respective market capitalization. The hypothetical portfolios were constructed with equal initial investments in each market, regrouped according to their market capitalization, and rebalanced to equal investments in each national market at the end of each month. All series are based on MSCI's Standard Developed Markets Total Return indices. In terms of their total annual compounded returns, portfolios 1, 2, and 3 finished in the expected order. This study suggests that market size as measured by the respective market capitalization of national equity markets has predictive power with respect to the relative performance of broadly diversified global equity investments.
ISSN:1068-0896
2168-8613
DOI:10.3905/joi.2011.20.4.099