Do emerging markets provide currency diversification benefits?

Ines Chaieb, Vihang Errunza and Basma Majerbi

International Journal of Banking, Accounting and Finance, 2013, vol. 5, issue 1/2, 102-120

Abstract: We examine the role of emerging markets in providing currency diversification benefits. We use global sectoral portfolios for developed and emerging markets. Our empirical tests based on a conditional international asset pricing model show that on average the prices of currency risks are very close to zero but they increase significantly during crisis periods. We find that the currency exposures and risk premia are lowest for the G7 portfolios augmented with a small set of eight emerging markets over most of the time period for almost all sectors. Finally, holding a most diversified portfolio of developed and emerging markets may not provide additional benefits.

Keywords: international asset pricing; currency risk; emerging markets; international diversification; global sector investment; currency diversification. (search for similar items in EconPapers)
Date: 2013
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