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Looking at new markets for international diversification : frontier markets

journal contribution
posted on 06.12.2017, 00:00 by Aswini SukumaranAswini Sukumaran, Rakesh GuptaRakesh Gupta, T Jithendranathan
Purpose: The purpose of this paper is to examine whether there exist significant benefits from diversification into frontier markets for an Australian investor in comparison to a US investor. Design/methodology/approach: The study uses the computationally efficient ADCC GARCH model to estimate time-varying correlations of returns. The authors also compare the results to DCC GARCH correlations in order to test whether the results are model-specific. Optimal portfolios with several restrictions were constructed and the results from Australian and US investors were compared. The study also uses a holding out period that is rebalanced at the end of each quarter using new portfolio weights. Findings: The study finds that there are significant benefits for the Australian investor from diversifying into frontier markets. However, the benefits to the US investor are much higher than that of an Australian investor. The results from the holding out period also present significantly higher benefits to the US investor compared to the Australian investor. Originality/value: This study examines the diversification benefits to the Australian investor from frontier markets and compares the benefits of the Australian and the US investors. The results emphasise the potential benefits from including frontier markets in the portfolio. The paper also presents a holding out period analysis.

History

Volume

11

Issue

1

Start Page

97

End Page

116

Number of Pages

20

eISSN

1758-6569

ISSN

1743-9132

Location

United Kingdom

Publisher

Emerald Publishing

Language

en-aus

Peer Reviewed

Yes

Open Access

No

External Author Affiliations

Griffith University; School of Business and Law (2013- ); TBA Research Institute; University of St. Thomas (Saint Paul, Minn.);

Era Eligible

Yes

Journal

International journal of managerial finance.