In a new publication entitled “Accounting for Geographic Exposure in Performance and Risk Reporting for Equity Portfolios”, EDHEC-Risk Institute underlines the usefulness of analysing the performance and risks of portfolios, by taking into account their geographic equity exposure based on real economic activity and not only on their place of listing or, more generally, the nationality assigned to them in market indices. This research was conducted with the support of CACEIS as part of EDHEC-Risk Institute’s research chair on “New Frontiers in Risk Assessment and Performance Reporting”.
This study finds that, for a number of stocks, their official nationality does not match their real economic exposure as represented by the company’s distribution of sales. A dominant practice in the search for international diversification of equity portfolios is to classify stocks according to their place of listing, incorporation or headquarters. However, such a practice is questionable within the context of a globalised marketplace where a company's operations are typically not restricted to any single country.
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