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Portfolio analysis of South American stock markets

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  • Yochanan Shachmurove

Abstract

This paper analyses the optimal investment strategy in the stock markets of a selected group of South American countries: Mexico, Brazil, Argentina and Chile. The Markowitz efficiency frontiers are derived based on daily stock market index returns expressed in US dollars, for the period of 1 January 1988 through 23 December 1993. In addition to the Markowitz algorithm, the low partial moment algorithm is used. The benefits of international diversification are studied from the perspectives of an American investor who can invest both in the US and in the South American stock markets. The paper assesses the risks and rewards of investing in these countries based on both foreign exchange as well as sovereign risks. It is shown that the optimal portfolio derived provides a risk-adjusted return that is better or, as good as, the return realizable from investing in stock markets with lesser degrees of risk. The optimal portfolio is calculated based on daily stock-market returns for the emerging South American countries mentioned, with the S&P 500 Index incorporated into the analysis. The portfolio's performance is then measured using various portfolio evaluation techniques.

Suggested Citation

  • Yochanan Shachmurove, 1998. "Portfolio analysis of South American stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 315-327.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:3:p:315-327
    DOI: 10.1080/096031098333069
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    Cited by:

    1. Yochanan Shachmurove, 2001. "Dynamic Co-movements of Stock Indices: The Emerging Middle Eastern and the United States Markets," Penn CARESS Working Papers ddffc4204cf90a8523fb64134, Penn Economics Department.
    2. Shachmurove, Yochanan, 1999. "The Premium in Black Foreign Exchange Markets: Evidence from Developing Economies," Journal of Policy Modeling, Elsevier, vol. 21(1), pages 1-39, January.
    3. Rishma Vedd & Paul Lazarony, 2014. "The Risk-Return Trade-Off Of Investing In Latin American Emerging Stock Markets," Accounting & Taxation, The Institute for Business and Finance Research, vol. 6(1), pages 93-104.

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