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Do Frontier Market Equities have a Role to Play in a Diversified International Equity Portfolio?

Author

Listed:
  • Chandan Prayag
  • David du Toit
  • Kristin Kenmuir
  • Alastair Morrison
  • Chimwala Tembo

    (University of Cape Town)

Abstract

This study investigates the impact of including frontier market equities in a diversified equity portfolio consisting of emerging and developed markets equities. It is found that while emerging market equity indices have been highly correlated with those of developed markets, correlations between the investable frontier market indices and both the emerging and the developed market indices have been significantly lower. The paper shows that the inclusion of equities from frontier markets in an internationally diversified equity portfolio is significantly advantageous, leading to portfolios with superior risk-return characteristics. However, both, the choice of the frontier market index and of the period of study affect the results.

Suggested Citation

  • Chandan Prayag & David du Toit & Kristin Kenmuir & Alastair Morrison & Chimwala Tembo, 2010. "Do Frontier Market Equities have a Role to Play in a Diversified International Equity Portfolio?," The African Finance Journal, Africagrowth Institute, vol. 12(Conferenc), pages 75-97.
    • Handle: RePEc:afj:journl:v:12:y:2010:i:conference:p:75-97
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    More about this item

    Keywords

    Frontier markets; Correlations; Efficient frontiers; Diversification;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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