Two-Stage Asset Allocation with Data Envelopment Analysis: The Case of Emerging Markets

Emerging countries have experienced significant geopolitical, economic and demographic changes in recent years. These changes have led investors to doubt the merits of investing in them or not. This study examines different rules of portfolio construction using exchange-traded funds from eighteen emerging markets and employs Data Envelopment Analysis to select the efficient ones. We show that portfolios created using this method clearly outperform equally weighted portfolios and also those built using classical portfolio optimization approaches.