What Matters Most When Constructing Global Equity Portfolios?
Author InfoFoort HAMELINK, (Lombard Odier & Cie and Vrije Universiteit) Hélène HARASTY (Lombard Odier & Cie) Pierre HILLION (Insead (Singapore), Academic Advisor to Lombard Odier & Cie) Abstract Equity returns are believed to be strongly influenced by country, sector and style effects. A key issue is to be able to disentangle those various effects from one another. In particular, differences between country returns may simply reflect differences in the sector composition of country markets, which makes it clearly difficult to disassociate both effects. Similarly, from 1999-2001 the relative perfor-mance of Growth versus Value might be solely due to the striking performance of the Technology and Telecommunication sectors. For global equity portfolio man-agers, it is crucial to identify which factors offer the highest diversification benefits and return potential. We apply a multi-factor approach to estimate “pure” coun-try, sector and style factor returns. Using data going back to 1990,
