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Emerging Markets and the Global Economy by Duc Khuong Nguyen, Sabri Boubaker, Mohammed Hedi Arouri

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Chapter 29

Emerging Market Stocks in Global Portfolios: A Hedging Approach

Imad Moosa and Vikash Ramiah,    School of Economics, Finance and Marketing, Royal Melbourne Institute of Technology (RMIT), Melbourne, Australia

Abstract

A hedging approach to international diversification is suggested to examine the effectiveness of diversification into emerging markets. By using portfolios consisting of the stocks of seven developed markets and seven emerging markets, we obtain results indicating that diversification into emerging markets is not effective in terms of risk reduction as measured by the variance of the rate of return on the portfolio. Two robustness tests are used, the conventional mean-variance approach and the use of alternative estimation ...

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