Frontier Market Transaction Costs and Diversfication

40 Pages Posted: 13 Oct 2011 Last revised: 20 Nov 2013

See all articles by Ben R. Marshall

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: November 19, 2013

Abstract

Frontier markets, sometimes referred to as “emerging emerging markets,” have high transaction costs so investors who rebalance their portfolios monthly do not receive diversification benefits. However, diversification gains can be achieved by investors rebalancing every three months or longer. The diversification benefits we document are based on comprehensive measures of transaction costs using tick data for 19 frontier markets that are readily accessible to foreign investors. Our results cover the 2002-2010 period and apply to investors who add frontier market exposure to U.S. portfolios and portfolios with U.S. and emerging market exposure.

Keywords: Frontier market, liquidity, transaction cost, diversification

JEL Classification: G11, G15

Suggested Citation

Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Frontier Market Transaction Costs and Diversfication (November 19, 2013). Available at SSRN: https://ssrn.com/abstract=1942592 or http://dx.doi.org/10.2139/ssrn.1942592

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

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Nhut H. Nguyen

Auckland University of Technology ( email )

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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
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Auckland
New Zealand
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64 9 441 8177 (Fax)

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