Emerging Markets
EMERGING MARKETS:
1996 -2001
Divecha, Drach and Stefek (1992) carried an extensive study of emerging markets between 1986 and 1991. Their main findings were that during that period, emerging markets had a weaker correlation with each other compared to the correlation between developed markets. In addition, they found evidence that suggested that emerging markets are relatively uncorrelated with the developed markets. As a result, they showed that a portfolio combining some investment in these emerging markets with investment in developed markets will not only increase the return, but also lower the risk. More specifically, the authors showed that over the five-year period, a portfolio consisting entirely of equity from developed markets would have yielded an annual return of 12.6 % with an annual overall risk of 18.3%. If 20% of the portfolio were invested in Emerging Markets this would have increased the return to14.7% while reducing the overall risk from 18.3% to 17.5%.
Much more recently, Abraham, Seyyed, and Al-Elg (2001) carried a detailed analysis of the Emerging Gulf Equity Markets. Their results support the finding of Divicha & Al. The main findings were as follows:
1. Gulf Equity Markets have high returns and a low correlation with the U.S. Stocks. Thus they
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