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Value investing in emerging markets: risks and benefits

  • Kargin, Vladislav

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://www.sciencedirect.com/science/article/B6W69-46RDPYG-3/2/be5d6e16520beb4da89cbeb1f44a3799
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Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 3 (2002)
Issue (Month): 3 (September)
Pages: 233-244

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Handle: RePEc:eee:ememar:v:3:y:2002:i:3:p:233-244
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620356

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  1. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
  2. 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.
  3. Masters, Timothy, 1998. "Just what are we optimizing, anyway?," International Journal of Forecasting, Elsevier, vol. 14(2), pages 277-290, June.
  4. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
  5. William Goetzmann & Philippe Jorion, 1998. "Re-emerging Markets," Yale School of Management Working Papers ysm50, Yale School of Management, revised 01 Aug 2000.
  6. Allan Timmermann & M. Hashem Pesaran, 1999. "A Recursive Modelling Approach to Predicting UK Stock Returns," FMG Discussion Papers dp322, Financial Markets Group.
  7. 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.
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