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Value Investing in Emerging Markets: Risks and Benefits

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Author Info
Vladislav Kargin (Cornerstone Research)

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Abstract

This paper identifies a subset of emerging markets that have higher than average expected returns and studies risk properties of this subset by investment simulations. It is found that: (1) the portfolio of "value" emerging markets generates superior returns, and (2) statistical measures of its risk are close to the corresponding measures for the portfolio of all emerging markets. The statistical significance of these results were checked by a bootstrap procedure. The results imply that the optimal share of emerging markets increases from 0% for an equally weighted portfolio to about 25% for the portfolio of undervalued emerging markets.

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File URL: http://129.3.20.41/eps/if/papers/0309/0309005.pdf
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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0309005.

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Length: 11 pages
Date of creation: 09 Sep 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0309005

Note: Type of Document - PDF; prepared on IBM PC ; pages: 11; figures: included. Published in Emerging Markets Review
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Web page: http://129.3.20.41

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Related research
Keywords: emerging markets; investment simulations; bootstrap;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation

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  1. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February. [Downloadable!] (restricted)
  2. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(3), pages 773-816. [Downloadable!] (restricted)
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  3. Goetzmann, William N. & Jorion, Philippe, 1999. "Re-Emerging Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 1-32, March. [Downloadable!]
  4. William N. Goetzmann & Philippe Jorion, 1998. "Re-emerging Markets," Yale School of Management Working Papers ysm50, Yale School of Management. [Downloadable!]
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  5. Tom Arnold & Philip Hersch & J. Harold Mulherin & Jeffry Netter, 1999. "Merging Markets," Journal of Finance, American Finance Association, vol. 54(3), pages 1083-1107, 06. [Downloadable!] (restricted)
  6. Granger, C.W.J. & Pesaran, M. H., 1999. "Economic and Statistical Measures of Forecast Accuracy," Cambridge Working Papers in Economics 9910, Faculty of Economics, University of Cambridge. [Downloadable!]
  7. Pesaran, M. H. & Timmermann, A., 1996. "A Recursive Modelling Approach to Predicting UK Stock Returns'," Cambridge Working Papers in Economics 9625, Faculty of Economics, University of Cambridge.
    Other versions:
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This page was last updated on 2009-11-13.

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