The contribution of emerging markets in international diversification strategies
AbstractNew investment opportunities provided by emerging markets have intrigued investors striving to obtain a better risk - return combination for their international portfolios. With this expanded opportunity set, however, come some important questions: to take full advantage of international diversification benefits in a growing global market arena, must investors design comprehensive portfolios involving numerous countries and complex weighting schemes or do smaller portfolios using simplified weighting strategies perform as well? Furthermore, are emerging markets really a valuable component of these internationally diversified portfolios, or is an investor better off avoiding these markets in favour of the more established developed markets? Using theoretical portfolios which incorporate emerging markets to different extents and which reflect varying degrees of portfolio breadth and different weighting schemes, this study finds that the incremental benefits of broad-scale diversification efforts using complex weighting strategies is small. Furthermore, in these relatively small, yet well-performing portfolios, emerging markets play a critical role. Overall, equally weighted portfolios which include some emerging markets that have positive economic forecasts and low correlations with the other countries in the portfolio can provide diversification benefits which are comparable to portfolios with more breadth and more complex weighting schemes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 8 (1998)
Issue (Month): 5 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAFE20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Salehizadeh, Mehdi, 2003. "U.S. multinationals and the home bias puzzle: an empirical analysis," Global Finance Journal, Elsevier, vol. 14(3), pages 303-318, December.
- Phengpis, Chanwit & Swanson, Peggy E., 2004. "Increasing input information and realistically measuring potential diversification gains from international portfolio investments," Global Finance Journal, Elsevier, vol. 15(2), pages 197-217, August.
- Ely, David & Salehizadeh, Mehdi, 2001. "American depositary receipts: An analysis of international stock price movements," International Review of Financial Analysis, Elsevier, vol. 10(4), pages 343-363.
- Sirr, Gordon & Garvey, John & Gallagher, Liam, 2011. "Emerging markets and portfolio foreign exchange risk: An empirical investigation using a value-at-risk decomposition technique," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1749-1772.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.