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Re-emerging Markets

William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Philippe Jorion
University of California, Irvine - Paul Merage School of Business


April 13, 1996

Yale School of Mangement Working Paper No. F-56

Abstract:     
Recent research shows that emerging markets are distinguished by high returns and low covariances with global market factors. These are striking results, because of their immediate implications for the international investor. One key issue is whether these results may be attributed to selection biases. In particular, we only observe markets that have "emerged," where emergence is typically conditioned upon recently exceeding a size threshold. We often do not have information about markets that "submerged" in the past, and then "re-emerged" recently. Most of today's emerging markets are actually re- emerging markets, but data before their last submergence is difficult to obtain. We simulate a simple, general model of global markets, in which markets are priced according to a world factor, but for which returns are only observed if the market capitalization exceeds a threshold at the end of the observation period. The simulations reveal that recently emerged markets display substantial biases in observed returns -- returns are too high. Conditioning upon recent emergence "picks out" markets with low betas. Turning to recent empirical evidence, we show that there are reasons to suspect conditioning biases. In particular, returns immediately after emergence are greater than later on, and than before emergence. We also report that the performance of less-followed submerged markets is typically inferior to that of emerged markets.

JEL Classifications: R31

Working Paper Series

Date posted: April 14, 1998 ; Last revised: August 21, 2000

Contact Information

William N. Goetzmann (Contact Author)
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://viking.som.yale.edu
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Philippe Jorion
University of California, Irvine - Paul Merage School of Business ( email )
Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)
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