Predictable Risk and Returns in Emerging Markets

51 Pages Posted: 12 Sep 2005

See all articles by Campbell R. Harvey

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 1994


The emergence of new equity markets in Europe, Latin America, Asia, the Mideast and Africa provides a new menu of opportunities for investors. These markets exhibit high expected returns as well as high volatility. Importantly, the low correlations with developed countries' equity markets significantly reduce the unconditional portfolio risk of a world investor. However, standard global asset pricing models, which assume complete integration of capital markets, fail to explain the cross-section of average returns in emerging countries. An analysis of the predictability of the returns reveals that emerging market returns are more likely than developed countries to be influenced by local information.

This is the final working paper version of my 1995 publication in the Review of Financial Studies.

Keywords: Emerging markets, cost of capital, performance evaluation, non-normality, market integration, market segmentation, capital market reforms, market liberalization, financial openness, predictable returns

JEL Classification: G12, G15, F30

Suggested Citation

Harvey, Campbell R., Predictable Risk and Returns in Emerging Markets (August 1, 1994). Available at SSRN: or

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)


National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States