A1 Journal article (refereed), original research

The changing role of emerging and frontier markets in global portfolio diversification

Open Access publication

Publication Details
Authors: Pätäri Eero, Ahmed Sheraz, John Elena, Karell Ville
Publisher: Cogent OA / Taylor & Francis Group
Publication year: 2019
Language: English
Related Journal or Series Information: Cogent Economics and Finance
Volume number: 7
Issue number: 1
Start page: 1
End page: 23
Number of pages: 23
ISSN: 2332-2039
JUFO-Level of this publication: 1
Open Access: Open Access publication
Location of the parallel saved publication: https://www.tandfonline.com/doi/full/10.1080/23322039.2019.1701910


Although the literature on the benefits of diversifying equity
portfolios to emerging markets is abundant, the role of frontier markets
in global equity portfolio diversification is clearly less examined. We
contribute to the existing literature by examining three different,
though closely related, spillover effects (i.e., return, shock and
volatility spillovers) between developed, emerging and frontier markets
over the period from June 2002 to December 2016. We also investigate the
time-variability in the cross-market correlations within the same
period. Moreover, we divide the full-sample period into two sub-periods
to find out how the intensity of integration of emerging and frontier
markets with three developed equity markets (represented by the US,
European and Japanese stock markets) has changed or varied during the
sample period. Based on both correlation analysis and the
VAR(1)–BEKK-GARCH(1,1) model, the global financial crisis and the
Euro-zone crisis 2009–2012 have changed the interlinkages between
developed and developing markets, as well as those between emerging and
frontier markets. The results show that after the global financial
crisis, particularly frontier markets have become more integrated with
the developed markets, whereas in case of emerging markets, the same
tendency has taken place already before the financial crisis. The
increased cross-market integration has important practical implications
for risk management of global equity portfolios.

Last updated on 2020-20-03 at 10:03