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Equity Market Integration And Diversification: Evidence From Emerging And Developed Countries

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  • Hong Rim
  • Robert Setaputra

Abstract

This study examined the role of the US market on the portfolio of emerging stock markets in Asia, Europe, and S. America from the foreign investors’ perspectives. The Lambda is used to separate impacts of exchange rates from stock returns in local currencies. Notable findings are as follows. First, there is no additional diversification gain for the portfolio of six emerging regional markets when the US market is added as a representative of developed markets. Second, there are some potential diversification benefits (lower risk) to be exploited in the portfolio of regional emerging markets if the US market is added: the US market seems to play an important role in reducing risk in the portfolio of regional emerging markets. The results could be of value to advance risk management for portfolio managers and individuals alike in emerging markets.

Suggested Citation

  • Hong Rim & Robert Setaputra, 2020. "Equity Market Integration And Diversification: Evidence From Emerging And Developed Countries," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 14(2), pages 51-59.
    • Handle: RePEc:ibf:ijbfre:v:14:y:2020:i:2:p:51-59
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    More about this item

    Keywords

    Lambda; Integration; Diversification; Contagion; Emerging Markets; and Crisis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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