Emerging Markets: When are They Worth it?

Posted: 10 Feb 2003

See all articles by C. Mitchell Conover

C. Mitchell Conover

University of Richmond - E. Claiborne Robins School of Business

Gerald R. Jensen

Northern Illinois University

Robert Johnson

University of San Diego - School of Business Administration

Abstract

Using 24 years of data, we show that emerging market equities are a worthy addition to a U.S. investor's portfolio of developed market equities. Specifically, portfolio returns increased by approximately 1.5 percentage points a year when emerging country equities were included in the investment set. When we considered U.S. Federal Reserve monetary policy, however, we found that the benefits of investing in emerging markets accrued almost exclusively during periods of restrictive U.S. monetary policy. During periods of expansive U.S. monetary policy, the benefits to a U.S. investor of holding emerging market equities were trivial. An implication of our findings is that evaluating monetary conditions is a necessary prerequisite to identifying an optimal allocation of assets to international equities.

Suggested Citation

Conover, C. Mitchell and Jensen, Gerald and Johnson, Robert, Emerging Markets: When are They Worth it?. Financial Analysts Journal, Vol. 58, No. 2, March/April 2002. Available at SSRN: https://ssrn.com/abstract=305406

C. Mitchell Conover (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Gerald Jensen

Northern Illinois University ( email )

Barsema Hall
Finance Department
DeKalb, IL 60115
United States
815-753-6399 (Phone)

Robert Johnson

University of San Diego - School of Business Administration ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619-260-4849 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
771
PlumX Metrics