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International diversification with factor funds / Cheol S. Eun in Management science, Vol. 56 N° 9 (Septembre 2010) 

Public ISBD [article]  in Management science > Vol. 56 N° 9 (Septembre 2010) . - pp. 1500-1518 Titre : International diversification with factor funds Type de document : texte imprimé Auteurs : Cheol S. Eun, Auteur ; Sandy Lai, Auteur ; Frans A. de Roon, Auteur Année de publication : 2010 Article en page(s) : pp. 1500-1518 Note générale : Management Langues : Anglais (eng) Mots-clés : International  diversification  Local  factors  Factor  funds Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We propose a new investment strategy employing "factor funds" to systematically enhance the mean-variance efficiency of international diversification. Our approach is motivated by the increasing evidence that size (SMB), book-to-market (HML), and momentum (MOM) factors, along with the market factor, adequately describe international stock returns, and by the direct link between investors' portfolio choice problems and international asset pricing theories and tests. Using data from 10 developed countries during the period 1981–2008, we show that the "augmented" optimal portfolio involving local factor funds substantially outperforms the "benchmark" optimal portfolio comprising country market indices only as measured by their portfolio Sharpe ratios. This strongly rejects the intersection hypothesis which posits that the local factor funds do not span investment opportunities beyond what country market indices do. Among the three classes of factor funds, HML funds contribute most to the efficiency gains. In addition, the local version of factor funds outperforms the global factor funds. The added gains from local factor diversification are significant for both in-sample and out-of-sample periods, and for a realistic range of additional investment costs for factor funds, and remain robust over time. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/56/9/1500 [article] International diversification with factor funds [texte imprimé] / Cheol S. Eun, Auteur ; Sandy Lai, Auteur ; Frans A. de Roon, Auteur . - 2010 . - pp. 1500-1518. Management Langues : Anglais (eng) in Management science > Vol. 56 N° 9 (Septembre 2010) . - pp. 1500-1518 Mots-clés : International  diversification  Local  factors  Factor  funds Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We propose a new investment strategy employing "factor funds" to systematically enhance the mean-variance efficiency of international diversification. Our approach is motivated by the increasing evidence that size (SMB), book-to-market (HML), and momentum (MOM) factors, along with the market factor, adequately describe international stock returns, and by the direct link between investors' portfolio choice problems and international asset pricing theories and tests. Using data from 10 developed countries during the period 1981–2008, we show that the "augmented" optimal portfolio involving local factor funds substantially outperforms the "benchmark" optimal portfolio comprising country market indices only as measured by their portfolio Sharpe ratios. This strongly rejects the intersection hypothesis which posits that the local factor funds do not span investment opportunities beyond what country market indices do. Among the three classes of factor funds, HML funds contribute most to the efficiency gains. In addition, the local version of factor funds outperforms the global factor funds. The added gains from local factor diversification are significant for both in-sample and out-of-sample periods, and for a realistic range of additional investment costs for factor funds, and remain robust over time. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/56/9/1500