What is an Optimal Allocation in Hong Kong Stock, Real Estate, and Money Markets: An Individual Asset, Efficient Frontier Portfolios, or a Naïve Portfolio? Is This a New Financial Anomaly?

Zhihui Lv, Chun Kei Tsang, Niklas F. Wagner, Wing Keung Wong*

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

3 Citations (Scopus)

Abstract

To test for arbitrage opportunities and market efficiency in the Hong Kong money, stock, and real estate markets, we find that the money market stochastically dominates both the stock and real estate markets. Furthermore, the real estate market dominates the stock market, the money market dominates nearly all the efficient frontier portfolios, none of the efficient portfolios dominates the money market, and the money market also dominates the equal-weighting portfolio. This infers that in some cases investors could achieve higher expected ex-ante utility by investing in an individual asset rather than a portfolio. Our conclusions drawn from the pre-COVID-19 period are the same as those drawn from the entire period and the conclusions drawn from the COVID-19 period are the same as those drawn from the entire period except that the money market only stochastically dominates some of the efficient frontier portfolios. Our findings question diversification benefits in the Hong Kong capital market during our sample period, including both the pre-COVID-19 and COVID-19 periods.

Original languageEnglish
Pages (from-to)1554-1571
Number of pages18
JournalEmerging Markets Finance and Trade
Volume59
Issue number5
Early online date30 Nov 2022
DOIs
Publication statusPublished - 9 Apr 2023

Scopus Subject Areas

  • Finance
  • Economics, Econometrics and Finance(all)

User-Defined Keywords

  • efficient frontier
  • fund portfolios
  • risk aversion
  • Stochastic dominance

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