Should You Tilt Your Equity Portfolio to Smaller Countries?

In this article, the authors examine the relationship between country size, measured as the aggregate market capitalization of the listed stocks in a country, and individual stock returns. They find that stocks from small countries tend to have higher average returns than stocks from large countries...

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Bibliographic Details
Published in:Journal of portfolio management 2017-10, Vol.44 (1), p.127-141
Main Authors: Fisher, Gregg S., Shah, Ronnie, Titman, Sheridan
Format: Article
Language:English
Subjects:
Asset allocation
Bias
Capital assets
Diversification
Economic models
Emerging markets
Equity
International
International markets
Investors
Mid cap investments
Mutual funds
Rates of return
Securities markets
Small cap investments
Stock exchanges
Stocks
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Summary:In this article, the authors examine the relationship between country size, measured as the aggregate market capitalization of the listed stocks in a country, and individual stock returns. They find that stocks from small countries tend to have higher average returns than stocks from large countries. The country size effect is largely independent of the firm size effect and other country quantitative factors such as book/market and momentum. The authors conjecture that the country size effect is due to home bias and provide mixed evidence in support of this conjecture.
ISSN:0095-4918
2168-8656
DOI:10.3905/jpm.2017.44.1.127