Development strategy in offshore markets: evidence from the Channel Islands

Abstract

Purpose

This paper aims to review the development of the Channel Islands exchange and assess the potential diversification benefits arising from the inclusion of this market in investment portfolios containing UK and French equity assets.

Design/methodology/approach

First this paper uses a simple stochastic drift, GARCH, and time‐varying parameter CAPM to model total returns indices. Second, it uses the unconditional and conditional means and variances from first stage as inputs into a mean‐variance portfolio quadratic optimisation problem: the solutions of which denote the optimal asset weights.

Findings

The evidence suggests that although there are serious difficulties in modelling time series from small illiquid equity markets owing to price‐rigidity, the limited benefits that do exist for the inclusion of Channel Islands assets in portfolios do so preferentially with Paris as opposed to London assets.

Originality/value

This paper extends the literature development policy options for small offshore markets and provides the first analysis of the Channel Islands.

Citation

Hearn, B. (2011), "Development strategy in offshore markets: evidence from the Channel Islands", Journal of Economic Studies, Vol. 38 No. 1, pp. 30-51. https://doi.org/10.1108/01443581111096132