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Value Investing in Emerging Markets: Risks and Benefits

  • Vladislav Kargin

    (Cornerstone Research)

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://econwpa.repec.org/eps/if/papers/0309/0309005.pdf
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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
Contact details of provider: Web page: http://econwpa.repec.org

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  1. 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.
  2. William N. Goetzmann & Philippe Jorion, 1997. "Re-emerging Markets," NBER Working Papers 5906, National Bureau of Economic Research, Inc.
  3. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
  4. 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.
  5. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
  6. Masters, Timothy, 1998. "Just what are we optimizing, anyway?," International Journal of Forecasting, Elsevier, vol. 14(2), pages 277-290, June.
  7. 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.
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