Do Portfolio Construction Strategies Matter in Mitigating Macroeconomic Risks?
DOI:
https://doi.org/10.55578/jift.2604.005Keywords:
Egyptian Exchange, Equal risk contribution, Minimum variance, Inflation hedging, Portfolio construction, Emerging markets, Macroeconomic factors, Tactical allocationAbstract
This study examines how macroeconomic variables—the market risk premium, inflation, the exchange rate, and the interest rate—affect the performance of portfolios constructed using six different strategies applied to the Egyptian Exchange (EGX). Using monthly data for 31 non-financial stocks over the period of 2020 to 2024, we construct and compare Equal Weighting (EW), Minimum Variance (MinVar), Equal Risk Contribution (ERC), Mean-Variance Optimization (MVO), Value, and Growth portfolios, and subject all six to a multivariate OLS regression framework with stationarity controls. The market risk premium dominates all other factors across every strategy. Minimum Variance portfolios have been most affected by the exchange rate depreciation, while the Growth portfolios have been insulated to a great degree. The interest rate positively impacted five portfolios, which is a paradoxical effect. The interest rate normally negatively impacts portfolios, but in the case of the Egyptian economy, the interest rate increased during the crisis, which caused the risk premium to widen. The inflation rate positively impacted the Value portfolio. The results showed an interesting anomaly whereby the heuristic Equal Risk Contribution portfolio outperformed the theoretical Minimum Variance portfolio. Policy implications include transparent exchange-rate adjustment, credible inflation targeting, and improvements in corporate governance standards.
References
1. Asprem, M. (1989). Stock prices, asset portfolios, and macroeconomic variables in ten European countries. Journal of Banking & Finance, 13, 589–612.
2. Central Bank of Egypt. (2025). Monetary policy decisions. Cairo: CBE. https://www.cbe.org.eg
3. Hosseini, S. M., Ahmad, Z., & Lai, Y. W. (2011). The role of macroeconomic variables on the stock market index in China and India. International Journal of Economics and Finance, 3(6), 233–243.
4. Nanda, A., & Narayan, P. K. (2020). Empirical relationship between macroeconomic volatility and stock returns: Evidence from Latin American markets. Journal of International Financial Markets, Institutions and Money, 67, 101218.
5. Iania, L., Collage, R., & Vereycken, M. (2023). The impact of uncertainty in macroeconomic variables on stock returns in the USA. Journal of Risk and Financial Management, 16(3), 189. https://doi.org/10.3390/jrfm16030189
6. Rudberg, A., & Johansson, J. (2021). The impact of macroeconomic variables on the Swedish stock market [Bachelor's thesis, Karlstad Business School].
7. Kolawole, K., Seyingbo, O., Oloyin-Abdulhakeem, B., Haliru, A., & Osunkunle, U. (2020). Macroeconomic variables and stock returns of the London Stock Exchange. REDECA, 7(2), 19–32.
8. Assefa, T. A., Esqueda, O. A., & Mollick, A. V. (2017). Stock returns and interest rates around the world: A panel data approach. Journal of Economics and Business, 89, 20–35.
9. Graham, M., Peltomäki, J., & Piljak, V. (2016). Global economic activity as an explicator of emerging market equity returns. Research in International Business and Finance, 36, 424–435.
10. Firmansyah, M., Mu'ammal, I., & Tsalasa, A. R. A. (2024). The influence of macroeconomics on investment performance. Economics Development Analysis Journal, 13(3), 289–300.
11. Chauque, D. F. F., & Rayappan, P. A. P. (2018). The impact of macroeconomic variables on stock market performance: A case of Malaysia. Edelweiss Applied Science and Technology, 2(1), 100–104. https://doi.org/10.33805/2576.8484.122
12. Assagaf, A., Murwaningsari, E., Gunawan, J., & Mayangsari, S. (2019). The effect of macroeconomic variables on the stock return of companies listed on the stock exchange: Empirical evidence from Indonesia. International Journal of Business and Management, 14(8), 108. https://doi.org/10.5539/ijbm.v14n8p108
13. Nijam, H. M., Ismail, S. M. M., & Musthafa, A. M. M. (2015). The impact of macro-economic variables on stock market performance: Evidence from Sri Lanka. Journal of Emerging Trends in Economics and Management Sciences, 6(2), 151–157.
14. Singh, T., Mehta, S., & Varsha, M. S. (2011). Macroeconomic factors and stock returns: Evidence from Taiwan. Journal of Economics and International Finance, 2(4), 217–227.
15. Gu, G., Zhu, W., & Wang, C. (2022). Time-varying influence of interest rates on stock returns: Evidence from China. Economic Research–Ekonomska Istraživanja, 35(1), 2510–2529. https://doi.org/10.1080/1331677X.2021.1966639
16. Hedau, A. (2024). Impact of macroeconomic variables on the performance of the Indian stock market. Journal of Informatics Education and Research, 4(1).
17. Joseph, A., Geetha, E., & Kishore, L. (2025). Impact of macroeconomic factors on bank stock returns: Empirical evidence from India. Investment Management and Financial Innovations, 22(1), 416–428. https://doi.org/10.21511/imfi.22(1).2025.31
18. Mohammadi, Y., Mohammadi, E., & Kia, G. E. (2021). The effect of macroeconomic variables on stock portfolio performance based on traditional and modern network. Advances in Mathematical Finance & Applications, 6(3), 441–464. https://doi.org/10.22034/AMFA.2020.1865594.1205
19. Pala, A., & Orgun, B. O. (2015). The effect of macroeconomic variables on foreign portfolio investments: An implication for Turkey. Journal of Business, Economics & Finance, 4(1). https://doi.org/10.17261/Pressacademia.201519962
20. Ragab, N., & Abou-Zaid, A. (2025). How do stock returns respond to a currency devaluation announcement? Evidence from the Egyptian Exchange. Journal of Risk and Financial Management, 18(1), 32. https://doi.org/10.3390/jrfm18010032
21. Nworah, J., Idu, E., & Ogbuefi, J. (2023). The impact of macro-economic variables on real estate investment performance. Educational Administration: Theory and Practice, 29(4), 2216–2231. https://doi.org/10.53555/kuey.v29i4.7011
22. Clarke, R., de Silva, H., & Thorley, S. (2013). Risk parity, maximum diversification, and minimum variance: An analytic perspective. Journal of Portfolio Management, 39(3), 39–53.
23. Pham, B. T., Vo, D. H., & Nguyen, H. M. (2024). Inflation hedging through portfolio construction: Evidence from BRICS markets. Cogent Economics & Finance, 12(1), 2327170. https://doi.org/10.1080/23322039.2024.2327170
24. DeMiguel, V., Nogales, F., & Uppal, R. (2023). Portfolio construction and the role of rebalancing frequency. Journal of Financial Economics, 150(2), 345–372.
25. Maillard, S., Roncalli, T., & Teiletche, J. (2010). The properties of equally weighted risk contribution portfolios. Journal of Portfolio Management, 36(4), 60–70.
26. Sharpe, W. F. (1966). Mutual fund performance. Journal of Business, 39(1), 119–138.
27. Treynor, J. L. (1965). How to rate management of investment funds. Harvard Business Review, 43(1), 63–75.
28. Ross, S. A. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341–360.
29. Barros, L. A. B. C., & da Silva, F. C. (2019). Portfolio strategy returns and macroeconomic risk factors. PhD Thesis, University of Verona.
30. Kowalewski, O., & Piotrowski, A. (2023). Macroeconomic factors and value and growth strategies. International Review of Financial Analysis, 89, 102776.
31. Barakat, M. R., Elgazzar, S. H., & Hanafy, K. M. (2016). Impact of macroeconomic variables on stock markets: Evidence from emerging markets. International Journal of Economics and Finance, 8(1), 195–207. https://doi.org/10.5539/ijef.v8n1p195
32. Krška, Š., Král, P., & Heryán, T. (2023). Do macroeconomic factors matter for stock returns? Evidence from Central European markets. Borsa Istanbul Review, 23(4), 915–931.
33. Middle East Institute. (2023). A sharp rise in inflation forces Egyptians to cut expenses. Washington, DC: MEI.
34. Fisher, I. (1930). The theory of interest. New York: Macmillan.
35. International Monetary Fund. (2023). Arab Republic of Egypt: Request for Extended Arrangement Under the Extended Fund Facility (Country Report No. 23/11). Washington, DC: IMF.
Downloads
Published
Data Availability Statement
The original data is publicly available and can be submitted. The construction of the portfolios and processed data can be uploaded upon request.
Issue
Section
License
Copyright (c) 2026 Shahd Elboghdady (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.