Finding diversification opportunities in emerging markets presents continuous challenge for international investors. This is the case because diversification opportunities in emerging markets change as a result of change in the expected level, dynamics and direction of cross-country, cross-area and cross-assets correlations, as well as the expected (dis)appearance of volatility transmission across countries and areas. In order to provide the most up-to-date evidence on potential for the portfolio diversification in emerging markets, the author will use recent literature. According to the author’s findings, potential for portfolio diversification still exists in all emerging markets areas and the majority of individual emerging markets around the world. Additionally, portfolio diversification in different segments of an emerging financial market can also be beneficial to international investors. Due to the variability of key preconditions for international portfolio diversification, investors should frequently adjust their portfolio positions.
Abbas, Q., Khan, S., & Shah, S. Z. A. (2013). Volatility transmission in regional Asian stock markets. Emerging Markets Review, 16, 66-77. https://doi.org/10.1016/j.ememar.2013.04.004
Abbes, M. B., & Trichilli, Y. (2015). Islamic stock markets and potential diversification benefits. Borsa Istanbul Review, 15(2), 93-105. https://doi.org/10.1016/j.bir.2015.03.001
Al Nasser, O. M., & Hajilee, M. (2016). Integration of emerging stock markets with global stock markets. Research in International Business and Finance, 36, 1-12. https://doi.org/10.1016/j.ribaf.2015.09.025
Aluko, O. A., Fapetu, O., & Azeez, B. A. (2018). International portfolio diversification in the Nigerian stock market: A global financial crisis perspective. Future Business Journal, 4(2), 189-194. https://doi.org/10.1016/j.fbj.2018.06.001
Arouri, M. E. H., Nguyen, D. K., & Pukthuanthong, K. (2012). An international CAPM for partially integrated markets: Theory and empirical evidence. Journal of Banking & Finance, 36(9), 2473-2493. https://doi.org/10.1016/j.jbankfin.2012.05.004
Basu, A. K., & Huang-Jones, J. (2015). The performance of diversified emerging market equity funds. Journal of International Financial Markets, Institutions and Money, 35, 116-131. https://doi.org/10.1016/j.intfin.2015.01.002
Bekaert, G., & Harvey, C. R. (2017). Emerging equity markets in a globalizing world. Netspar Discussion Papers, DP 05/2014-024. Available at SSRN: https://ssrn.com/abstract=2344817 or http://dx.doi.org/10.2139/ssrn.2344817
Bekiros, S., Boubaker, S., Nguyen, D. K., & Uddin, G. S. (2017). Black swan events and safe havens: The role of gold in globally integrated emerging markets. Journal of International Money and Finance, 73, 317-334. https://doi.org/10.1016/j.jimonfin.2017.02.010
Bhuiyan, R. A., Rahman, M. P., Saiti, B., & Ghani, G. B. M. (2019). Does the Malaysian Sovereign sukuk market offer portfolio diversification opportunities for global fixed-income investors? Evidence from wavelet coherence and multivariate-GARCH analyses. The North American Journal of Economics and Finance, 47, 675-687. https://doi.org/10.1016/j.najef.2018.07.008
Briere, M., Oosterlinck, K., & Szafarz, A. (2015). Virtual currency, tangible return: Portfolio diversification with bitcoin. Journal of Asset Management, 16(6), 365-373. https://doi.org/10.1057/jam.2015.5
Carrick, J. (2016). Bitcoin as a complement to emerging market currencies. Emerging Markets Finance and Trade, 52(10), 2321-2334. https://doi.org/10.1080/1540496X.2016.1193002
Christoffersen, P., Errunza, V., Jacobs, K., & Jin, X. (2014). Correlation dynamics and international diversification benefits. International Journal of Forecasting, 30(3), 807-824. https://doi.org/10.1016/j.ijforecast.2014.01.001
Christoffersen, P., Errunza, V., Jacobs, K., & Langlois, H. (2012). Is the potential for international diversification disappearing? A dynamic copula approach. The Review of Financial Studies, 25(12), 3711-3751. https://doi.org/10.1093/rfs/hhs104
Das, D., Kannadhasan, M., & Bhattacharyya, M. (2019). Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?. The North American Journal of Economics and Finance, 48, 1-19. https://doi.org/10.1016/j.najef.2019.01.008
Donadelli, M., & Persha, L. (2014). Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty. Research in International Business and Finance, 30, 284-309. https://doi.org/10.1016/j.ribaf.2013.09.008
Eisl, A., Gasser, S., & Weinmayer, K. (2015). Caveat emptor: Does Bitcoin improve portfolio diversification?. Available at SSRN: https://ssrn.com/abstract=2408997 or http://dx.doi.org/10.2139/ssrn.2408997
Gad, S., & Andrikopoulos, P. (2019). Diversification benefits of Shari'ah compliant equity ETFs in emerging markets. Pacific-Basin Finance Journal, 53, 133-144. https://doi.org/10.1016/j.pacfin.2018.10.009
Graham, M., Kiviaho, J., & Nikkinen, J. (2012). Integration of 22 emerging stock markets: A three-dimensional analysis. Global Finance Journal, 23(1), 34-47. https://doi.org/10.1016/j.gfj.2012.01.003
Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, 431-437. https://doi.org/10.1016/j.irfa.2018.03.004
Guidi, F., & Ugur, M. (2014). An analysis of South-Eastern European stock markets: Evidence on cointegration and portfolio diversification benefits. Journal of International Financial Markets, Institutions and Money, 30, 119-136. https://doi.org/10.1016/j.intfin.2014.01.007
Gupta, R., & Guidi, F. (2012). Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets. International Review of Financial Analysis, 21, 10-22. https://doi.org/10.1016/j.irfa.2011.09.001
Hadhri, S., & Ftiti, Z. (2019). Asset allocation and investment opportunities in emerging stock markets: Evidence from return asymmetry-based analysis. Journal of International Money and Finance, 93, 187-200. https://doi.org/10.1016/j.jimonfin.2019.01.002
Kellner, R., & Rösch, D. (2019). A country specific point of view on international diversification. Journal of International Money and Finance, 98, 102064-102076. https://doi.org/10.1016/j.jimonfin.2019.102064
Koepke, R. (2019). What drives capital flows to emerging markets? A survey of the empirical literature. Journal of Economic Surveys, 33(2), 516-540. https://doi.org/10.1111/joes.12273
Majdoub, J., & Mansour, W. (2014). Islamic equity market integration and volatility spillover between emerging and US stock markets. The North American Journal of Economics and Finance, 29, 452-470. https://doi.org/10.1016/j.najef.2014.06.011
Mensah, J. O., & Alagidede, P. (2017). How are Africa's emerging stock markets related to advanced markets? Evidence from copulas. Economic Modelling, 60, 1-10. https://doi.org/10.1016/j.econmod.2016.08.022
Mensi, W., Hammoudeh, S., & Kang, S. H. (2017). Risk spillovers and portfolio management between developed and BRICS stock markets. The North American Journal of Economics and Finance, 41, 133-155. https://doi.org/10.1016/j.najef.2017.03.006
Mensi, W., Hammoudeh, S., Reboredo, J. C., & Nguyen, D. K. (2014). Do global factors impact BRICS stock markets? A quantile regression approach. Emerging Markets Review, 19, 1-17. https://doi.org/10.1016/j.ememar.2014.04.002
Mensi, W., Shahzad, S. J. H., Hammoudeh, Zeitun, S. R., & Rehma, M. U. (2017). Diversification potential of Asian frontier, BRIC emerging and major developed stock markets: A wavelet-based value at risk approach. Emerging Markets Review, 32, 130-147. https://doi.org/10.1016/j.ememar.2017.06.002
Miyajima, K., Mohanty, M. S., & Chan, T. (2015). Emerging market local currency bonds: diversification and stability. Emerging Markets Review, 22, 126-139. https://doi.org/10.1016/j.ememar.2014.09.006
Najeeb, S. F., Bacha, O., & Masih, M. (2015). Does heterogeneity in investment horizons affect portfolio diversification? Some insights using M-GARCH-DCC and wavelet correlation analysis. Emerging Markets Finance and Trade, 51(1), 188-208. https://doi.org/10.1080/1540496X.2015.1011531
Narayana, S., & Rehman, M. U. (2017). Diversification opportunities between emerging and frontier Asian (EFA) and developed stock markets. Finance Research Letters, 23, 223-232. https://doi.org/10.1016/j.frl.2017.06.007
Neaime, S. (2016). Financial crises and contagion vulnerability of MENA stock markets. Emerging Markets Review, 27, 14-35. https://doi.org/10.1016/j.ememar.2016.03.002
Oloko, T. F. (2018). Portfolio diversification between developed and developing stock markets: The case of US and UK investors in Nigeria. Research in International Business and Finance, 45, 219-232. https://doi.org/10.1016/j.ribaf.2017.07.153
Piljak, V. (2013). Bond markets co-movement dynamics and macroeconomic factors: Evidence from emerging and frontier markets. Emerging Markets Review, 17, 29-43. https://doi.org/10.1016/j.ememar.2013.08.001
Rehman, M. U., & Shah, S. Z. A. (2016). Determinants of Return’s Co-Movement for Effective Portfolio Diversification Among Regional Stock Markets. Revista Evidenciação Contábil & Finanças, 4(1), 84-96. https://doi.org/10.18405/recfin20160106
Saiti, B., Bacha, O. I., & Masih, M. (2014). The diversification benefits from Islamic investment during the financial turmoil: The case for the US-based equity investors. Borsa Istanbul Review, 14(4), 196-211. https://doi.org/10.1016/j.bir.2014.08.002
Tudor, C., & Popescu-Dutaa, C. (2012). On the causal relationship between stock returns and exchange rates changes for 13 developed and emerging markets. Procedia-Social and Behavioral Sciences, 57, 275-282. https://doi.org/10.1016/j.sbspro.2012.09.1186
Zaimović, A., & Arnaut Berilo, A. (2014). Risk diversification between stock markets in Germany and Bosnia and Herzegovina. South East European Journal of Economics and Business, 9(1), 30-36. https://doi.org/10.2478/jeb-2014-0003
POTENTIAL FOR THE PORTFOLIO DIVERSIFICATION IN EMERGING MARKETS: A SURVEY OF EMPIRICAL EVIDENCE
Finding diversification opportunities in emerging markets presents continuous challenge for international investors. This is the case because diversification opportunities in emerging markets change as a result of change in the expected level, dynamics and direction of cross-country, cross-area and cross-assets correlations, as well as the expected (dis)appearance of volatility transmission across countries and areas. In order to provide the most up-to-date evidence on potential for the portfolio diversification in emerging markets, the author will use recent literature. According to the author’s findings, potential for portfolio diversification still exists in all emerging markets areas and the majority of individual emerging markets around the world. Additionally, portfolio diversification in different segments of an emerging financial market can also be beneficial to international investors. Due to the variability of key preconditions for international portfolio diversification, investors should frequently adjust their portfolio positions.
Abbas, Q., Khan, S., & Shah, S. Z. A. (2013). Volatility transmission in regional Asian stock markets. Emerging Markets Review, 16, 66-77. https://doi.org/10.1016/j.ememar.2013.04.004
Abbes, M. B., & Trichilli, Y. (2015). Islamic stock markets and potential diversification benefits. Borsa Istanbul Review, 15(2), 93-105. https://doi.org/10.1016/j.bir.2015.03.001
Al Nasser, O. M., & Hajilee, M. (2016). Integration of emerging stock markets with global stock markets. Research in International Business and Finance, 36, 1-12. https://doi.org/10.1016/j.ribaf.2015.09.025
Aluko, O. A., Fapetu, O., & Azeez, B. A. (2018). International portfolio diversification in the Nigerian stock market: A global financial crisis perspective. Future Business Journal, 4(2), 189-194. https://doi.org/10.1016/j.fbj.2018.06.001
Arouri, M. E. H., Nguyen, D. K., & Pukthuanthong, K. (2012). An international CAPM for partially integrated markets: Theory and empirical evidence. Journal of Banking & Finance, 36(9), 2473-2493. https://doi.org/10.1016/j.jbankfin.2012.05.004
Basu, A. K., & Huang-Jones, J. (2015). The performance of diversified emerging market equity funds. Journal of International Financial Markets, Institutions and Money, 35, 116-131. https://doi.org/10.1016/j.intfin.2015.01.002
Bekaert, G., & Harvey, C. R. (2017). Emerging equity markets in a globalizing world. Netspar Discussion Papers, DP 05/2014-024. Available at SSRN: https://ssrn.com/abstract=2344817 or http://dx.doi.org/10.2139/ssrn.2344817
Bekiros, S., Boubaker, S., Nguyen, D. K., & Uddin, G. S. (2017). Black swan events and safe havens: The role of gold in globally integrated emerging markets. Journal of International Money and Finance, 73, 317-334. https://doi.org/10.1016/j.jimonfin.2017.02.010
Bhuiyan, R. A., Rahman, M. P., Saiti, B., & Ghani, G. B. M. (2019). Does the Malaysian Sovereign sukuk market offer portfolio diversification opportunities for global fixed-income investors? Evidence from wavelet coherence and multivariate-GARCH analyses. The North American Journal of Economics and Finance, 47, 675-687. https://doi.org/10.1016/j.najef.2018.07.008
Briere, M., Oosterlinck, K., & Szafarz, A. (2015). Virtual currency, tangible return: Portfolio diversification with bitcoin. Journal of Asset Management, 16(6), 365-373. https://doi.org/10.1057/jam.2015.5
Carrick, J. (2016). Bitcoin as a complement to emerging market currencies. Emerging Markets Finance and Trade, 52(10), 2321-2334. https://doi.org/10.1080/1540496X.2016.1193002
Christoffersen, P., Errunza, V., Jacobs, K., & Jin, X. (2014). Correlation dynamics and international diversification benefits. International Journal of Forecasting, 30(3), 807-824. https://doi.org/10.1016/j.ijforecast.2014.01.001
Christoffersen, P., Errunza, V., Jacobs, K., & Langlois, H. (2012). Is the potential for international diversification disappearing? A dynamic copula approach. The Review of Financial Studies, 25(12), 3711-3751. https://doi.org/10.1093/rfs/hhs104
Das, D., Kannadhasan, M., & Bhattacharyya, M. (2019). Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?. The North American Journal of Economics and Finance, 48, 1-19. https://doi.org/10.1016/j.najef.2019.01.008
Donadelli, M., & Persha, L. (2014). Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty. Research in International Business and Finance, 30, 284-309. https://doi.org/10.1016/j.ribaf.2013.09.008
Eisl, A., Gasser, S., & Weinmayer, K. (2015). Caveat emptor: Does Bitcoin improve portfolio diversification?. Available at SSRN: https://ssrn.com/abstract=2408997 or http://dx.doi.org/10.2139/ssrn.2408997
Gad, S., & Andrikopoulos, P. (2019). Diversification benefits of Shari'ah compliant equity ETFs in emerging markets. Pacific-Basin Finance Journal, 53, 133-144. https://doi.org/10.1016/j.pacfin.2018.10.009
Graham, M., Kiviaho, J., & Nikkinen, J. (2012). Integration of 22 emerging stock markets: A three-dimensional analysis. Global Finance Journal, 23(1), 34-47. https://doi.org/10.1016/j.gfj.2012.01.003
Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, 431-437. https://doi.org/10.1016/j.irfa.2018.03.004
Guidi, F., & Ugur, M. (2014). An analysis of South-Eastern European stock markets: Evidence on cointegration and portfolio diversification benefits. Journal of International Financial Markets, Institutions and Money, 30, 119-136. https://doi.org/10.1016/j.intfin.2014.01.007
Gupta, R., & Guidi, F. (2012). Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets. International Review of Financial Analysis, 21, 10-22. https://doi.org/10.1016/j.irfa.2011.09.001
Hadhri, S., & Ftiti, Z. (2019). Asset allocation and investment opportunities in emerging stock markets: Evidence from return asymmetry-based analysis. Journal of International Money and Finance, 93, 187-200. https://doi.org/10.1016/j.jimonfin.2019.01.002
Kellner, R., & Rösch, D. (2019). A country specific point of view on international diversification. Journal of International Money and Finance, 98, 102064-102076. https://doi.org/10.1016/j.jimonfin.2019.102064
Koepke, R. (2019). What drives capital flows to emerging markets? A survey of the empirical literature. Journal of Economic Surveys, 33(2), 516-540. https://doi.org/10.1111/joes.12273
Majdoub, J., & Mansour, W. (2014). Islamic equity market integration and volatility spillover between emerging and US stock markets. The North American Journal of Economics and Finance, 29, 452-470. https://doi.org/10.1016/j.najef.2014.06.011
Mensah, J. O., & Alagidede, P. (2017). How are Africa's emerging stock markets related to advanced markets? Evidence from copulas. Economic Modelling, 60, 1-10. https://doi.org/10.1016/j.econmod.2016.08.022
Mensi, W., Hammoudeh, S., & Kang, S. H. (2017). Risk spillovers and portfolio management between developed and BRICS stock markets. The North American Journal of Economics and Finance, 41, 133-155. https://doi.org/10.1016/j.najef.2017.03.006
Mensi, W., Hammoudeh, S., Reboredo, J. C., & Nguyen, D. K. (2014). Do global factors impact BRICS stock markets? A quantile regression approach. Emerging Markets Review, 19, 1-17. https://doi.org/10.1016/j.ememar.2014.04.002
Mensi, W., Shahzad, S. J. H., Hammoudeh, Zeitun, S. R., & Rehma, M. U. (2017). Diversification potential of Asian frontier, BRIC emerging and major developed stock markets: A wavelet-based value at risk approach. Emerging Markets Review, 32, 130-147. https://doi.org/10.1016/j.ememar.2017.06.002
Miyajima, K., Mohanty, M. S., & Chan, T. (2015). Emerging market local currency bonds: diversification and stability. Emerging Markets Review, 22, 126-139. https://doi.org/10.1016/j.ememar.2014.09.006
Najeeb, S. F., Bacha, O., & Masih, M. (2015). Does heterogeneity in investment horizons affect portfolio diversification? Some insights using M-GARCH-DCC and wavelet correlation analysis. Emerging Markets Finance and Trade, 51(1), 188-208. https://doi.org/10.1080/1540496X.2015.1011531
Narayana, S., & Rehman, M. U. (2017). Diversification opportunities between emerging and frontier Asian (EFA) and developed stock markets. Finance Research Letters, 23, 223-232. https://doi.org/10.1016/j.frl.2017.06.007
Neaime, S. (2016). Financial crises and contagion vulnerability of MENA stock markets. Emerging Markets Review, 27, 14-35. https://doi.org/10.1016/j.ememar.2016.03.002
Oloko, T. F. (2018). Portfolio diversification between developed and developing stock markets: The case of US and UK investors in Nigeria. Research in International Business and Finance, 45, 219-232. https://doi.org/10.1016/j.ribaf.2017.07.153
Piljak, V. (2013). Bond markets co-movement dynamics and macroeconomic factors: Evidence from emerging and frontier markets. Emerging Markets Review, 17, 29-43. https://doi.org/10.1016/j.ememar.2013.08.001
Rehman, M. U., & Shah, S. Z. A. (2016). Determinants of Return’s Co-Movement for Effective Portfolio Diversification Among Regional Stock Markets. Revista Evidenciação Contábil & Finanças, 4(1), 84-96. https://doi.org/10.18405/recfin20160106
Saiti, B., Bacha, O. I., & Masih, M. (2014). The diversification benefits from Islamic investment during the financial turmoil: The case for the US-based equity investors. Borsa Istanbul Review, 14(4), 196-211. https://doi.org/10.1016/j.bir.2014.08.002
Tudor, C., & Popescu-Dutaa, C. (2012). On the causal relationship between stock returns and exchange rates changes for 13 developed and emerging markets. Procedia-Social and Behavioral Sciences, 57, 275-282. https://doi.org/10.1016/j.sbspro.2012.09.1186
Zaimović, A., & Arnaut Berilo, A. (2014). Risk diversification between stock markets in Germany and Bosnia and Herzegovina. South East European Journal of Economics and Business, 9(1), 30-36. https://doi.org/10.2478/jeb-2014-0003
Pobrić, N. (2021). POTENTIAL FOR THE PORTFOLIO DIVERSIFICATION IN EMERGING MARKETS: A SURVEY OF EMPIRICAL EVIDENCE. Çukurova Üniversitesi İktisadi Ve İdari Bilimler Fakültesi Dergisi, 25(1), 19-45. https://doi.org/10.51945/cuiibfd.862019