Do Portfolio Construction Strategies Matter in Mitigating Macroeconomic Risks?

Abstract

This study examines how macroeconomic variables—the market risk premium, inflation, the exchange rate, and the interest rate—affect the performance of portfolios that are constructed using six different construction strategies. We use monthly data of 31 non-financial stocks listed on the Egyptian Exchange over the period of 2020–2024. The findings reveal that Market Risk Premium dominates the effect of other variables across all types of construction. Portfolios that are constructed based on Minimum Variance are most vulnerable to foreign exchange fluctuations while Growth portfolios show negligible sensitivity. Moreover, interest-rate effects are positive for five portfolios. Policy implications include transparent exchange-rate adjustment, credible inflation targeting, and institutional improvements in corporate governance standards.