How Large are the Benefits of Emerging Market Equities?

44 Pages Posted: 21 Oct 2012

See all articles by C. Mitchell Conover

C. Mitchell Conover

University of Richmond - E. Claiborne Robins School of Business

Gerald R. Jensen

Northern Illinois University

Robert Johnson

Economic Index Associates; Creighton University

Date Written: October 19, 2012

Abstract

We perform a comprehensive evaluation of the benefits of emerging market equities by extending previous research in four fundamental ways. The contribution of this study is that it 1) evaluates a more complete sample; 2) examines performance measures that account for asymmetric return distributions; 3) separates emerging markets by region; and 4) considers the influence that the market environment has on the benefits of emerging market investments. Our results suggest that previous research has understated the benefits associated with investing in emerging markets. We find that broad emerging market indices have relatively low downside risk, which results in Sortino ratios that are approximately twice that offered by developed markets. Furthermore, we find that Latin American countries are particularly beneficial in hedging against adverse conditions in U.S. financial markets. Overall, our findings indicate that emerging markets allow investors to achieve lower risk, higher returns, and expanded risk/return possibilities; especially during periods when developed world investors need diversification the most.

Keywords: emerging markets

JEL Classification: F21, G11, G15

Suggested Citation

Conover, C. Mitchell and Jensen, Gerald and Johnson, Robert, How Large are the Benefits of Emerging Market Equities? (October 19, 2012). Available at SSRN: https://ssrn.com/abstract=2164305 or http://dx.doi.org/10.2139/ssrn.2164305

C. Mitchell Conover (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Gerald Jensen

Northern Illinois University ( email )

Barsema Hall
Finance Department
DeKalb, IL 60115
United States
815-753-6399 (Phone)

Robert Johnson

Economic Index Associates ( email )

New York City, NY

Creighton University ( email )

2500 California Plaza
Omaha, NE 68178
United States

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