Original Research

On international fund construction in South Africa

D. J. Bradfield, C. S. Ardington
South African Journal of Business Management | Vol 28, No 3 | a793 | DOI: https://doi.org/10.4102/sajbm.v28i3.793 | © 2018 D. J. Bradfield, C. S. Ardington | This work is licensed under CC Attribution 4.0
Submitted: 15 October 2018 | Published: 30 September 1997

About the author(s)

D. J. Bradfield, Department of Statistical Sciences, University of Cape Town, South Africa
C. S. Ardington, Department of Statistical Sciences, University of Cape Town, South Africa

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Abstract

This article focusses on portfolio construction in markets where legislation restricts investors from investing in international markets. An extended market model is implemented to additionally estimate a component of foreign market risk. In the first part of the article the decomposition of the risk of securities on the Johannesburg Stock Exchange (JSE) is empirically demonstrated. In the second part an automated portfolio construction methodology based on the resulting foreign risk estimates of the model is empirically tested on the JSE. The results confirm there is potential for improving the performance of existing 'international' funds on the JSE using more rigorous quantitative approaches such as the one proposed here.

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