Abstract
We introduce Allocation Skew, a novel country allocator. This factor favours countries held with conviction by a small minority of managers. We find that strategies which buy and sell, respectively, the Morgan Stanley Capital International (MSCI) country indices with the highest and lowest scores in terms of this factor generate significant positive returns over a forward annual holding period. We also find that the profitability of this strategy is independent of the momentum effect of Muller and Ward. To build the Allocation Skew factor, we use a dataset that captures fund country allocations, compiled by Emerging Portfolio Fund Research (EPFR Global).
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