The Linkage between Emerging and Developed Markets: Implication for International Portfolio Diversification

Oladapo Fapetu () and Olufemi Aluko ()
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Oladapo Fapetu: Federal University of Agriculture Nigeria
Olufemi Aluko: University of Ilorin

Acta Universitatis Danubius. OEconomica, 2017, issue 13(6), 313-322

Abstract: This study is a holistic attempt to examine the linkage between emerging and developed markets between January 2012 and June 2016 using iShares MSCI Emerging Markets ETF and iShares MSCI World ETF to measure emerging and developed markets respectively. Employing the Johansen, Engle-Granger, and Philip-Ouliaris, cointegration testing approaches, this study reveals that there is no cointegration between emerging and developed markets, thus indicating that international portfolio diversification is feasible for investors holding financial assets in both markets. This finding implies that investors can reduce risk by constructing a portfolio consisting of assets in both emerging and developed markets.

Keywords: Emerging markets; Developed markets; International portfolio diversification; Cointegration (search for similar items in EconPapers)
Date: 2017
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