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Do emerging markets provide currency diversification benefits?

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  • Ines Chaieb
  • Vihang Errunza
  • Basma Majerbi

Abstract

We examine the role of emerging markets in providing currency diversification benefits. We use global sectoral portfolios for developed and emerging markets. Our empirical tests based on a conditional international asset pricing model show that on average the prices of currency risks are very close to zero but they increase significantly during crisis periods. We find that the currency exposures and risk premia are lowest for the G7 portfolios augmented with a small set of eight emerging markets over most of the time period for almost all sectors. Finally, holding a most diversified portfolio of developed and emerging markets may not provide additional benefits.

Suggested Citation

  • Ines Chaieb & Vihang Errunza & Basma Majerbi, 2013. "Do emerging markets provide currency diversification benefits?," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 102-120.
    • Handle: RePEc:ids:injbaf:v:5:y:2013:i:1/2:p:102-120
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    References listed on IDEAS

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    1. Krapl, Alain A., 2020. "The time-varying diversifiability of corporate foreign exchange exposure," Journal of Corporate Finance, Elsevier, vol. 65(C).

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