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dc.contributor.authorCamilleri, Silvio John
dc.contributor.authorGalea, Gabriella
dc.identifier.citationCamilleri, S. J., & Galea, G. (2009). The diversification potential offered by emerging markets in recent years. The FEMA Research Bulletin, 1(3), 21-37.en_GB
dc.description.abstractThis paper investigates the diversification prospects which may be reaped when investing in a mixture of emerging and developed market assets. Given that emerging markets are somewhat distinct from developed ones, one may expect significant diversification potential and therefore risk reduction. Yet, the latter may be counterbalanced by the fact that emerging markets usually present higher risks when considered on their own; for instance higher price volatility and fluctuating liquidity. We use a panel data set spanning over a 10 year period and form a number of portfolios. We find that over the sample period, emerging market assets could be combined into efficient portfolios when assessed in terms of risk and return. By contrast, portfolios involving developed market assets tended to be inefficient. We also investigate whether emerging markets have converged to developed ones over the past years. When analysing co-movements between indices, the correlation values suggest that emerging markets have offered diversification potential. However we also find evidence of features which make it more challenging to reap the expected risk reduction benefits. The latter factors are the tendency for emerging markets to exhibit a higher individual variability, and the trend for markets to move more in line with each other as suggested by convergence literature.en_GB
dc.subjectEconomic stabilizationen_GB
dc.subjectStock exchangesen_GB
dc.subjectOptions (Finance)en_GB
dc.titleThe diversification potential offered by emerging markets in recent yearsen_GB
dc.rights.holderThe copyright of this work belongs to the author(s)/publisher. The rights of this work are as defined by the appropriate Copyright Legislation or as modified by any successive legislation. Users may access this work and can make use of the information contained in accordance with the Copyright Legislation provided that the author must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the prior permission of the copyright holder.en_GB
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