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Similarity of emerging market returns under changing market conditions: Markets in the ASEAN-4, Latin America, Middle East, and BRICs

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  • Lyócsa, Štefan
  • Baumöhl, Eduard

Abstract

We studied the risk-return distances of 18 emerging stock markets in the period from January 2000 to December 2013. Distances are linked to volatility and time-varying correlations estimated in standard and asymmetric DCC models. Our results revealed a positive relationship between risk-return distances and volatility, which means that during more volatile periods, the risk-return characteristics in emerging markets exhibit lower similarity to the characteristics found in developed markets. This result seems to be in sharp contrast to most empirical studies using correlations. Within the portfolio framework, our results suggest that diversification into emerging stock markets may still provide desirable benefits to international investors.

Suggested Citation

  • Lyócsa, Štefan & Baumöhl, Eduard, 2015. "Similarity of emerging market returns under changing market conditions: Markets in the ASEAN-4, Latin America, Middle East, and BRICs," Economic Systems, Elsevier, vol. 39(2), pages 253-268.
    • Handle: RePEc:eee:ecosys:v:39:y:2015:i:2:p:253-268
    DOI: 10.1016/j.ecosys.2014.08.001
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    Cited by:

    1. Niţoi, Mihai & Pochea, Maria Miruna, 2016. "Testing financial markets convergence in Central and Eastern Europe: A non-linear single factor model," Economic Systems, Elsevier, vol. 40(2), pages 323-334.

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    More about this item

    Keywords

    Emerging stock markets; International diversification; Risk-return distances; Convergence; Volatility; Dynamic conditional correlations;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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