The Investment of Emerging Capital Markets and the Role of Derivative Securities

Tamer Korkmaz

Istanbul Stock Exchange Review, 2001, vol. 5, issue 17, 63-92

Abstract: In this paper, we analyze the need and the role of derivative securities in the emerging capital markets to insure the risks with low costs. Emerging Markets with Derivative Securities (EMDS) can produce more financial products to attract an increased inflow of foreign and local savings to these markets. We create a portfolio index that includes the emerging countries with derivative products and we compare the index returns with the International Finance Corporation (IFC) Composite and regional indices. Our portfolio has proven to outperform all these indices. Furthermore, in order to test the alternative investment opportunities, we apply Markowitz mean-variance model and we observe that most of the efficient portfolio combinations are composed of EMDS Index

Date: 2001
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