IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2016-03-58.html
   My bibliography  Save this article

The Impact of the (2011) Devaluation of the Swiss Franc on Eurozone Equity Benchmark Diversification

Author

Listed:
  • Daniel Broby

    (Department of Accounting and Finance, Strathclyde University, United Kingdom)

  • Raphael Faessler

    (Department of Accounting and Finance, Strathclyde University, United Kingdom)

  • Milenko Josavac

    (Department of Accounting and Finance, Strathclyde University, United Kingdom,)

  • Christophe Dehut

    (Department of Accounting and Finance, Strathclyde University, United Kingdom)

Abstract

We investigate the diversification benefits of adding Switzerland to a Eurozone equity portfolio, both before and after the removal of Swiss franc peg to the euro. We use a mean-variance portfolio framework to compare the benchmark indices in the Eurozone, including a direct comparison between Switzerland and Germany as substitute market. We investigate the diversification effect both before and during the policy of a minimum exchange rate EURO/CHF. Furthermore, we compare the outcome of the mean-variance portfolio with an equally weighted portfolio composed out of a screened sample of both Swiss value and growth stocks. Our findings suggest that an equally weighted Swiss value portfolio (1/N) will generate the best risk adjusted performance when compared to a market capitalisation weighted index of Eurozone equities. We conclude that Eurozone investors would benefit from diversifying their portfolio with some exposure to the Swiss equity market and in particular Swiss value stocks.

Suggested Citation

  • Daniel Broby & Raphael Faessler & Milenko Josavac & Christophe Dehut, 2016. "The Impact of the (2011) Devaluation of the Swiss Franc on Eurozone Equity Benchmark Diversification," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1270-1286.
  • Handle: RePEc:eco:journ1:2016-03-58
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/2585/pdf
    Download Restriction: no

    File URL: http://www.econjournals.com/index.php/ijefi/article/view/2585/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Victor DeMiguel & Lorenzo Garlappi & Raman Uppal, 2009. "Optimal Versus Naive Diversification: How Inefficient is the 1-N Portfolio Strategy?," The Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1915-1953, May.
    2. Lera, Sandro Claudio & Sornette, Didier, 2016. "Quantitative modelling of the EUR/CHF exchange rate during the target zone regime of September 2011 to January 2015," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 28-47.
    3. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
    4. Giancarlo Corsetti & Keith Kuester & André Meier & Gernot J. Müller, 2013. "Sovereign Risk, Fiscal Policy, and Macroeconomic Stability," Economic Journal, Royal Economic Society, vol. 0, pages 99-132, February.
    5. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    6. Sebastien Lleo & William T. Ziemba, 2015. "The Swiss Black Swan Bad Scenario: Is Switzerland Another Casualty of the Eurozone Crisis?," IJFS, MDPI, vol. 3(3), pages 1-30, August.
    7. Allen, Stuart, 1983. "Did the Swiss demand for money function shift?," Journal of Economics and Business, Elsevier, vol. 35(2), pages 239-244, June.
    8. Raymond Donnelly & Edward Sheehy, 1996. "The Share Price Reaction of U.K. Exporters to Exchange Rate Movements: An Empirical Study," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 157-165, March.
    9. Statman, Meir, 1987. "How Many Stocks Make a Diversified Portfolio?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 353-363, September.
    10. Patelis, Alex D, 1997. "Stock Return Predictability and the Role of Monetary Policy," Journal of Finance, American Finance Association, vol. 52(5), pages 1951-1972, December.
    11. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    12. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fu, Yufen & Blazenko, George W., 2017. "Normative portfolio theory," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 240-251.
    2. Malavasi, Matteo & Ortobelli Lozza, Sergio & Trück, Stefan, 2021. "Second order of stochastic dominance efficiency vs mean variance efficiency," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1192-1206.
    3. Giovanni Bonaccolto & Massimiliano Caporin & Sandra Paterlini, 2018. "Asset allocation strategies based on penalized quantile regression," Computational Management Science, Springer, vol. 15(1), pages 1-32, January.
    4. Bao, Te & Diks, Cees & Li, Hao, 2018. "A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction," Economic Modelling, Elsevier, vol. 68(C), pages 611-621.
    5. Francesco Lautizi, 2015. "Large Scale Covariance Estimates for Portfolio Selection," CEIS Research Paper 353, Tor Vergata University, CEIS, revised 07 Aug 2015.
    6. Michele Costola & Massimiliano Caporin, 2016. "Rational Learning For Risk-Averse Investors By Conditioning On Behavioral Choices," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-26, March.
    7. Allen, D.E. & McAleer, M.J. & Powell, R.J. & Singh, A.K., 2015. "Down-side Risk Metrics as Portfolio Diversification Strategies across the GFC," Econometric Institute Research Papers EI2015-32, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    8. Tienyu Hwang & Simon Gao & Heather Owen, 2014. "Markowitz efficiency and size effect: evidence from the UK stock market," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 721-750, November.
    9. Qi, Yue & Liao, Kezhi & Liu, Tongyang & Zhang, Yu, 2022. "Originating multiple-objective portfolio selection by counter-COVID measures and analytically instigating robust optimization by mean-parameterized nondominated paths," Operations Research Perspectives, Elsevier, vol. 9(C).
    10. Boudt, Kris & Raza, Muhammad Wajid & Wauters, Marjan, 2019. "Evaluating the Shariah-compliance of equity portfolios: The weighting method matters," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 406-417.
    11. Puhr, Harald & Müllner, Jakob, 2022. "Foreign to all but fluent in many: The effect of multinationality on shock resilience," Journal of World Business, Elsevier, vol. 57(6).
    12. Thomas J. Brennan & Andrew W. Lo, 2010. "Impossible Frontiers," Management Science, INFORMS, vol. 56(6), pages 905-923, June.
    13. Karagiannidis, Iordanis & Vozlyublennaia, Nadia, 2016. "Limits to mutual funds' ability to rely on mean/variance optimization," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 282-292.
    14. Mishra, Sasmita & Padhy, Sudarsan & Mishra, Satya Narayan & Misra, Satya Narayan, 2021. "A novel LASSO – TLBO – SVR hybrid model for an efficient portfolio construction," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    15. T.J. Flavin & M.R. Wickens, 2003. "Macroeconomic influences on optimal asset allocation," Review of Financial Economics, John Wiley & Sons, vol. 12(2), pages 207-231.
    16. Víctor Adame-García & Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero, 2017. "“Resolution of optimization problems and construction of efficient portfolios: An application to the Euro Stoxx 50 index"," IREA Working Papers 201702, University of Barcelona, Research Institute of Applied Economics, revised Feb 2017.
    17. Gökgöz, Fazıl & Atmaca, Mete Emin, 2017. "Portfolio optimization under lower partial moments in emerging electricity markets: Evidence from Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 437-449.
    18. DiTraglia, Francis J. & Gerlach, Jeffrey R., 2013. "Portfolio selection: An extreme value approach," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 305-323.
    19. Haoran Wang & Shi Yu, 2021. "Robo-Advising: Enhancing Investment with Inverse Optimization and Deep Reinforcement Learning," Papers 2105.09264, arXiv.org.
    20. Ali, Sajid & Raza, Naveed & Vinh Vo, Xuan & Le, Van, 2022. "Modelling the joint dynamics of financial assets using MGARCH family models: Insights into hedging and diversification strategies," Resources Policy, Elsevier, vol. 78(C).

    More about this item

    Keywords

    Company-specific Political Risk; Swiss Stock Market; Portfolio Diversification; Optimal Portfolios; Currency; Benchmark;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2016-03-58. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.