A mean-variance analysis of the global minimum variance portfolio constructed using the CARBS indices

Abstract

Abstract: The purpose of this paper is to construct a global minimum variance portfolio (GMVP) using the log returns of the CARBS (Canada, Australia, Russia, Brazil, South Africa) indices. The weights obtained indicate that most of the portfolio should be invested in Canadian equity. The returns series of the CARBS and the GMVP seem to be consistent with the stylised facts of financial time series. Further empirical analysis shows that the CAPM relationship holds for Canada, South Africa, and the GMVP. The systematic risk (b) of the GMVP is the lowest, and the Russian equity index is the highest. However the R2 of all the models indicate that the CAPM relationship is not a good fit for all the variables, and can therefore not be considered a reliable measure of risk