DIVERSIFICATION USING EMERGING EQUITY MARKETS
Date
2011-06-07
Authors
Paterson, Craig Steven
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Abstract
Research indicates that international portfolio diversification results in risk reduction
and/or improved rates of return across both developed and emerging markets.
However, these diversification benefits with developed markets are now lower than they
have ever been. The purpose of this project report has been to investigate the benefits
that could have been derived, from a South African perspective, through international
diversification, over the period 1976 to 2003.
The project report examined the mean returns and standard deviations, as well as intercountry
correlation coefficients, in respect of the equity markets of 27 countries. Efficient
ex-post international portfolios were developed using the Markowitz mean-variance
approach. Ex-ante investment strategies were also examined using a naïve “buy-themarket-
approach.
The main findings of the project report were:
South African investors would have benefited historically from international
portfolio diversification. However, the benefits of international portfolio
diversification have been diminishing over the last decade since the research
of Patrick (1996).
The increased importance of emerging equity markets for international
portfolio diversification was evidenced when comparing the Patrick (1996)
research to the extended period (1976 to 2003).
The importance of the investment horizon was evident as it was shown that
different efficient international portfolios could result from the use of monthly
as opposed to annual returns.
The impact of currency movements on the returns of foreign equity markets
had increased when compared to the previous study by Patrick (1996).
Description
MBA - WBS
Keywords
Equities, South Africa