Is the Diversification Benefit of Frontier Markets Realizable by Mean-Variance Investors? The Evidence of Investable Funds

Posted: 9 Jun 2014 Last revised: 6 Mar 2015

See all articles by Dave Berger

Dave Berger

Oregon State University

Kuntara Pukthuanthong

University of Missouri, Columbia

J. Jimmy Yang

Oregon State University - College of Business

Date Written: August 29, 2012

Abstract

We investigate whether the diversification benefits of frontier markets may be realized by mean-variance investors. In contrast to other studies, we focus on a set of investable frontier exchange-traded funds (ETFs) and mutual funds. Our analysis includes direct measurement of the economic benefits of frontier market diversification, as well as consideration of frontier market trading dynamics. We find that frontier market investing improves portfolio risk-return properties, that frontier funds offer diversification benefits in a mean-variance context, and that frontier fund volatility is driven by idiosyncratic factors. We also provide empirical evidence covering the most extensive set of 32 frontier markets that are in line with expanded frontier market classifications.

Keywords: Frontier markets, International diversification, Mutual funds, ETFs

Suggested Citation

Berger, Dave and Pukthuanthong, Kuntara and Yang, J. Jimmy, Is the Diversification Benefit of Frontier Markets Realizable by Mean-Variance Investors? The Evidence of Investable Funds (August 29, 2012). Journal of Portfolio Management, Vol. 39, No. (4), 36-48, 2013, Available at SSRN: https://ssrn.com/abstract=2138228 or http://dx.doi.org/10.2139/ssrn.2138228

Dave Berger (Contact Author)

Oregon State University ( email )

Bexell Hall 200
Corvallis, OR 97331
United States

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: https://www.kuntara.net/

J. Jimmy Yang

Oregon State University - College of Business ( email )

School of Accounting, Finance, and Information Sys
426 Austin Hall
Corvallis, OR 97331
United States
541-737-6005 (Phone)
541-737-4890 (Fax)

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