RT Journal Article
SR Electronic
T1 Investing in Emerging Stock Markets
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 68
OP 80
DO 10.3905/jwm.2004.434568
VO 7
IS 2
A1 Yesim Tokat
A1 Nelson W Wicas
YR 2004
UL https://pm-research.com/content/7/2/68.abstract
AB By blending theoretical and empirical approaches, the authors suggest that an allocation to emerging-markets stocks can enhance a portfolio's long-term risk-adjusted returns. The benefit of such an allocation is the opportunity to increase a portfolio's return while reducing its risk through diversification. However, the cycle of bull and bear markets, financial crises, and stock market booms and bubbles can break down the long-term case. Over certain short periods of time, investments in emerging markets have reduced a portfolio's return while increasing its volatility. To decide on the appropriate allocation to emerging markets, investors must weigh their expectations of long-run risk-adjusted returns against the potential regret of their portfolios' underperforming benchmarks or peer group averages over shorter investment horizons. In addition, practical factors such as transaction costs and the need to fund local liabilities may call for a smaller allocation than standard recommendations.