Frontier Markets under External Factors Consideration: Over-Diversification, Risk, and Portfolio Choices (2015–2024)
Year: 2025
Type: article
Abstract: Aiming to optimize the portfolio benefits, frontier markets are widely used for portfolio diversification strategies, but their high risk profiles and sensitivity to external shocks also brought uncertainty to the investment choices. This article examined the impact of integration in diversity on performance in frontier markets, the influence of exogenous shocks on portfolio outcomes, and the risk-adjusted priorities investors should adopt. In terms of methodologies, it is possible to use Minitab-based theoretical optimization portfolios with ex-post back-tests across two sub-periods (2015–2019; 2020–2024), using MRPUR, volatility, correlation, skewness, and drawdown diagnostics on portfolios spanning Morocco (MOR), Namibia (NAM), Kenya (KEN), and Central Africa (CEN) under the COVID-19 shock. The results illustrated that adding KEN did not reduce risk and diluted realized returns materially, while a selective MOR+NAM allocation delivered premium performance; investors should avoid over-diversification, and it is better to adopt dynamic allocation across observation countries.
DOI: 10.54097/sxy2tk21
Author: Jingtian Lan
Institution: University of Dundee
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4414089402