PHYSICS 102 Lecture Notes - Lecture 1: Market Capitalization, Corporate Bond, Systematic Risk
Document Summary
Should we bother to distinguish between emerging and developed markets: the increasing role of em s in the world economy, china, brazil, russia, india all feature in top 10 contributors to world gdp. Individual country volatility very high in em s; but composite index of volatility of. Em s about as high as of developed countries: risk should not only be measured using the standard deviation, important to consider downside risk as well. Betas now between 1. 2 and 1. 6 making em"s a risky asset class. Historical alpha almost 5% per year since 1988 (only significant at 11% significance level): correlations hide interesting dynamic: Em"s outperform developed markets in good times but perform at similar negative level in bad times (as seen in financial crisis). Suggests a non-linear dependence in em returns. If beta was truly higher than 1 em"s would underperform developed markets in bad times: market integration.
