Portfolio asset allocation process: International diversification by country or by sector?

Employing cluster analysis techniques, the efficacy of international diversification across economic sectors, or the so-called bottom-up approach, is examined as contrasted with the traditional approach used by fund managers of allocating assets by country and then by sector. The 1986-1993 period is...

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Bibliographic Details
Published inInternational journal of commerce and management Vol. 7; no. 3/4; p. 39
Main Authors Diamond, Jeanette M, Abdullah, Fuad A, Olson, Keith A
Format Journal Article
LanguageEnglish
Published Bingley Emerald Group Publishing Limited 01.03.1997
Subjects
Asset allocation
Cluster analysis
Currency
Diversification
Economic models
Emerging markets
Equity
Hypotheses
Investments
Portfolio management
Price variance
Securities markets
Statistical analysis
Stock exchanges
Studies
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Summary:Employing cluster analysis techniques, the efficacy of international diversification across economic sectors, or the so-called bottom-up approach, is examined as contrasted with the traditional approach used by fund managers of allocating assets by country and then by sector. The 1986-1993 period is covered, and data for 7 economic sectors in 20 countries divided into 3 regional groupings (North America, Pacific Rim, and Europe) is examined. The findings are portrayed in dendograms which depict the correlation coefficients between sector pairings. The statistical evidence suggests that the market sector approach has a great deal of merit as a basis for international portfolio diversification.
ISSN:2059-6014
2059-6022
DOI:10.1108/eb047355