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Article

Frontier Equity Markets: Risk Parity Lessons for Asset Allocation

Jorge A. Chan-Lau
The Journal of Alternative Investments Spring 2014, 16 (4) 28-36; DOI: https://doi.org/10.3905/jai.2014.16.4.028
Jorge A. Chan-Lau
is a senior economist at the International Monetary Fund and a senior fellow at the Center for Emerging Market Enterprises at the Fletcher School, Tufts University in Washington, DC.
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Abstract

Are frontier markets the next emerging markets? And if so, should global equity investors include them in their portfolios? From a risk parity perspective, investors can benefit from a frontier markets allocation well in excess of the market weight of the asset class. A risk parity portfolio tends to outperform a market-cap-weighted portfolio during periods of positive equity returns, while delivering comparable returns during crisis periods. Historical data shows that even if portfolio managers cannot follow a risk parity asset allocation strategy due to benchmark tracking considerations, overweighting frontier markets can help them outperform their benchmarks during upside periods without increasing downside risks significantly.

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The Journal of Alternative Investments: 16 (4)
The Journal of Alternative Investments
Vol. 16, Issue 4
Spring 2014
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Frontier Equity Markets: Risk Parity Lessons for Asset Allocation
Jorge A. Chan-Lau
The Journal of Alternative Investments Mar 2014, 16 (4) 28-36; DOI: 10.3905/jai.2014.16.4.028

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Frontier Equity Markets: Risk Parity Lessons for Asset Allocation
Jorge A. Chan-Lau
The Journal of Alternative Investments Mar 2014, 16 (4) 28-36; DOI: 10.3905/jai.2014.16.4.028
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