Is There a Free Lunch in Emerging Market Equities?

Posted: 15 Aug 1998

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Michael S. Urias

Morgan Stanley

Date Written: March 1998

Abstract

In the early 1990s, a number of papers began to appear in the academic and practitioners journals billing investments in emerging markets as a "free lunch." It was argued that emerging equity markets reduce risk and increase expected returns, rendering significant diversification benefits for globally-minded investors. Because these studies typically reflect the performance of direct investment in emerging market indices, the "free lunch"-doctrine may be less relevant for many investors. In this paper, we focus on the benefits from holding closed-end mutual funds, open-end mutual funds and ADRs. Using mean-variance spanning tests, we find that the direct exposure to emerging market indexes almost always gives benefits at least as strong as those from managed funds or ADR portfolios. Open-end funds track the indexes much better than either closed-end funds or ADR-portfolios.

JEL Classification: G12, G11, F21

Suggested Citation

Bekaert, Geert and Urias, Michael S., Is There a Free Lunch in Emerging Market Equities? (March 1998). Available at SSRN: https://ssrn.com/abstract=100789

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Michael S. Urias

Morgan Stanley

1585 Broadway
New York, NY 10036
United States

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