BUSI 4502 Study Guide - Final Guide: Emerging Markets, Foreign Exchange Risk, Efficient Frontier
30 Aug 2018
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Document Summary
This article discuss regarding the global portfolio diversification. The underlying theory indicates that by adding international asset towards domestic portfolios, the markowitz mean, which is the variance efficient frontier, will be at higher position as compared to domestic assets based portfolios1. The author is concerned if this theory remains accurate. Initially, the results proves inaccuracy of correlation between global equity markets benefits and international diversification. In the latest research, which is from year 1959 to 1995, it shows the increase of correlation between the two variables. This is mainly cause the emerging markets index have only be made available since 1985. The results consist of more than 40% of emerging markets index in an efficient portfolio. There are several challenges faced when diversifying portfolio. One of the challengers is the uncertainty to take advantage of stock pricing anomalies. Anomalies are known to be economically significant but it may not be helpful in the long run.
