Risk, return and portfolio optimization for various industries in the ASEAN region

Abstract

This paper examines risk, return and portfolio diversification at the industry level in four member countries of the ASEAN for which required data are available: Vietnam, Thailand, Malaysia, and Singapore. Market indices are examined for 10 industries from 2007 to 2016, comprising different economic periods, including 2007–2009 (crisis), 2010–2012 (post-crisis), and 2013–2016 (normal). Conditional value at risk is used to measure extreme risk. The Markowitz's risk-return framework is utilized to determine the optimal weight of industries in the portfolio. Findings suggest that, overall, the health-care industry should be given priority and importance as a sector with a dominant role in Vietnam, as this sector experiences the lowest extreme risk, earns the highest returns, and has become the second-largest contributor to the portfolio, which includes all sectors of the economy. Similar findings emerge for Singapore and Malaysia. However, in Thailand the industry in first place is consumer services. Keywords: ASEAN, CVaR, Portfolio optimization, Returns, Risks, JEL code: G11, G12, G15