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Essay / Research Paper Abstract
5 pages. This paper looks at international equity portfolios as far as the characteristics of cross-country return correlations for emerging market portfolios. Emerging market returns are said to be extremely volatile in comparison to return volatility in developed markets. But will adding emerging markets to a portfolio invested in developed markets tend to increase the overall portfolio risk or reduce it? Bibliography lists 5 sources.
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5 pages (~225 words per page)
File: D0_JGAgembs.rtf
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in developed markets. But will adding emerging markets to a portfolio invested in developed markets tend to increase the overall portfolio risk or reduce it? EMERGING MARKET RETURNS
Global Equity Managers manages international equity portfolios. Their investment committee is considering the possibility of adding emerging markets to existing portfolios. According to Scott Simone, this will increase
portfolio risk. According to LM Capital, emerging market debt is "debt issued by sovereign and corporate issuers located in the lesser-developed nations" (2002, PG). Some of the main characteristics
of emerging market debt can be viewed as being advantages. With the emerging market debt, it is agreed that returns of this nature can allow all important market diversification
within a portfolio. This is due largely to the fact that these type funds are unique unto themselves. They are largely considered to be a class of fund
that is unlike any other (LM Capital 2002). What does this mean? Rather than increasing the overall portfolio risk as Simone has suggested, this means that emerging market debt
can be used strictly to a portfolios advantage. Even though these are considered "highly inefficient markets" (LM Capital, 2002, PG), they present interesting and forward-looking investment opportunities. The
emerging market debt can have the benefit of "offering higher yields and greater potential for capital appreciation" (2002, PG). Because of this, the trading volume will tend to
increase. When this happens, there is "increased liquidity and lower transaction costs" (2002, PG). Emerging market debt has become more popular, therefore causing market analysts to consider them more
seriously than ever before. Stock market analysts tell us that adding this to ones portfolio not only serves the purpose of important diversification but also serves to reduce portfolio
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