countries versus industries in europe a normative portfolio.pdfVIP

Countries versus industries in Europe: A normative portfolio approach Received: 23rd May, 2005 Javier Estrada* is Associate Professor at the IESE Business School in Barcelona, Spain, and co-editor of the Emerging Markets Review. He has published extensively on topics related to investing and is the author of the book Finance in a Nutshell. He has an MS in finance and a PhD in economics, both from the University of Illinois at Urbana-Champaign. Mark Kritzman is President and CEO of Windham Capital Management, LLC. He has written numerous articles for academic and professional journals and is the author of six books including Puzzles of Finance and The Portable Financial Analyst. He has an MBA with distinction from New York University. Simon Myrgren is a senior research associate at State Street Associates, Cambridge, MA. He is primarily involved in research concerning portfolio allocation and portfolio risk models. Before joining State Street Associates he devised mathematical and computational models for theoretical physics applications at the University of California, Berkeley. He received his PhD in theoretical chemistry in August 2004. Se´ bastien Page is Vice President at State Street Associates, Boston, MA, where he is responsible for asset allocation and risk management. In 2003 he won the Bernstein Fabozzi/Jacobs Levy Award for Best Article in the Journal of Portfolio Management . He holds an M.Sc. in finance from Sherbrooke University, Canada, and is a CFA charterholder. *IESE Business School, Av. Pearson 21, 08034 Barcelona, Spain Tel: 34 93 253 4200; Fax: 34 93 253 4343; e-mail: jestrada@iese.edu Abstract The relative benefits of country diversification and industry diversification are critical for investors, portfolio managers and investment banks. The unification of Europe has had a substantial impact on these relative benefits and the ultimate goal of this paper is to evaluate their temporal evolution. It is found that, altho