International Diversification with Frontier Markets
Posted: 7 Nov 2011 Last revised: 6 Mar 2015
Date Written: November 6, 2011
We provide an analysis of frontier market equities with respect to world market integration and diversification. Principal component results reveal that frontier markets exhibit low levels of integration. In contrast with developed and emerging markets, frontier markets offer no indication of increasing integration through time. Furthermore, individual frontier market countries do not exhibit consistent rates of changing integration. Structural break tests identify breakpoints in integration, as well as integration dynamics across countries. We show that frontier markets have low integration with the world market and thereby offer significant diversification benefits.
Keywords: Frontier markets, International equity markets, Market Integration, International diversification
JEL Classification: F15, G15
Suggested Citation: Suggested Citation