Asset allocation and investment opportunities in emerging stock markets: Evidence from return asymmetry-based analysis

Sinda Hadhri and Zied Ftiti ()

Journal of International Money and Finance, 2019, vol. 93, issue C, 187-200

Abstract: This paper investigates whether it is profitable to invest in emerging markets. In addition to the classical first and second moments used in asset allocation, we focus on the third moment: realized skewness. From an empirical viewpoint, we show that some emerging markets exhibit a positive realized skewness and others a negative one. A skewness-based analysis across markets emphasizes potential opportunities for portfolio diversification and investment strategies. Furthermore, we propose different skewness-based strategies for investing in regional emerging markets, and find that return asymmetry leads to sizeable certainty equivalent gains. Our results show that investments in emerging markets seem to outperform investments in developed markets over time and for different time horizons especially in crisis periods. These results are robust to the use of the robust asymmetry measure of Brys et al. (2004) and, hence, international emerging markets are recommended as investment avenues over developed markets.

Keywords: Emerging markets; Realized skewness; Investment strategy; Diversification opportunities (search for similar items in EconPapers)
JEL-codes: F21 G12 G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:93:y:2019:i:c:p:187-200

DOI: 10.1016/j.jimonfin.2019.01.002

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