BUSI 4502 Lecture Notes - Cfa Institute, Emerging Markets
2 May 2018
School
Department
Course
Professor
Article 8 Performance Characteristics of Emerging Capital Markets
This article discuss regarding the capital markets in developing countries.
According to the World Bank, a developing country is defined as one who has a
per capita GNP placed in the lower or middle-income category.1 The emerging
stock markets are typically viewed as risky as they provide high returns and high
volatility. In order to examine the accuracy of the theory, the author uses the
)nternational Finance Corporations )FC Emerging Markets Data Base EMBD
to determine their risk and return along with the diversification benefit. The
period of the sample is two decades, which is from 1975 to 1995.
The results of this empirical research agree partially with the theory in
terms of high volatility and diversification benefits. Despite that, evidence shows
that the diversification benefit may not apply during financial crisis. As for the
high return, the emerging market performance may not reflect high average
return. However, this may differ based on the time period measured.
In conclusion, the emerging markets are an important asset class.
There are also issues faced when investing on the emerging markets.
Foreign investors will face difficulty in investing certain equity due to restriction
enforced by the local law and legislation. Lack of information regarding the
emerging markets, language barriers and different tax and accounting system
will result in investors having a hard time to predict for high return. Most
1 Barry, C. B., Peavy, J. W., & Rodriguez, M. (1998). Performance Characteristics of
Emerging Capital Markets. Financial Analysts Journal,54(1), 72-80.
doi:10.2469/faj.v54.n1.2147
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
This article discuss regarding the capital markets in developing countries. In order to examine the accuracy of the theory, the author uses the. )nternational finance corporation(cid:495)s (cid:523))fc(cid:524) emerging markets data base (cid:523)embd(cid:524) to determine their risk and return along with the diversification benefit. The period of the sample is two decades, which is from 1975 to 1995. The results of this empirical research agree partially with the theory in terms of high volatility and diversification benefits. Despite that, evidence shows that the diversification benefit may not apply during financial crisis. As for the high return, the emerging market performance may not reflect high average return. However, this may differ based on the time period measured. In conclusion, the emerging markets are an important asset class. There are also issues faced when investing on the emerging markets. Foreign investors will face difficulty in investing certain equity due to restriction enforced by the local law and legislation.
