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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
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    References listed on IDEAS

    as
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    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

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