 Benefits of diversifying investments into emerging markets with time-varying correlations: An Australian perspectiveRakesh Gupta and Gabriel Donleavy () Journal of Multinational Financial Management, 2009, vol. 19, issue 2, 160-177 Abstract: Australian investors can reduce their overall portfolio risk by diversifying into equities from other markets. Emerging markets have attracted significant interest because of their low correlations with Australian equity market returns; however, a number of studies have indicated that correlations between equity returns are increasing over time, so using unconditional estimates of correlations in a portfolio optimization model can result in the selection of a portfolio that may not be optimal. We use an Asymmetric Dynamic Conditional Correlation GARCH model to estimate time-varying correlations and include these correlation estimates in the portfolio optimization model. The assets used for portfolio construction comprise seven emerging market indices that are available to foreign investors. This study finds that, despite increasing correlations, there are still potential benefits for Australian investors who diversify into international emerging markets. Keywords: Australian; investors; Emerging; market; equities; Time-varying; correlations; Asymmetric; DCC; GARCH; models; International; diversification (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:19:y:2009:i:2:p:160-177 Access Statistics for this article Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth More articles in Journal of Multinational Financial Management from Elsevier |
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