Frontier Market Transaction Costs and Diversfication
40 Pages Posted: 13 Oct 2011 Last revised: 20 Nov 2013
Date Written: November 19, 2013
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: Suggested Citation