The relevance of emerging markets in portfolio diversification: Analysis in a downside risk framework

S S S Kumar ()
Additional contact information
S S S Kumar: Indian Institute of Management Kozhikode

Journal of Asset Management, 2012, vol. 13, issue 3, No 2, 162-169

Abstract: Abstract During the global financial crisis of 2008, emerging markets declined almost to the same extent as developed markets, casting doubts on their ability to provide diversification benefits. This article aims to assess the benefit of adding the volatility index, as an asset class, instead of emerging markets to the domestic portfolios of US and UK investors. The results show that for both US and UK investors, portfolios comprising volatility-based contracts outperform emerging markets portfolios on the basis of portfolio performance metrics, such as the Sortino ratio, the Adjusted Sharpe ratio and the Stutzer index. The results imply that US investors seeking risk reduction have an alternative investment opportunity in volatility-based contracts rather than investing in emerging markets. Investing in emerging markets is fraught with political and exchange rate risks, whereas investing in the VIX is free of these risks. Currently, there are no exchange-traded products on the FTSE 100 VIX. This study makes a case for introducing them.

Keywords: downside risk; portfolio diversification; emerging markets (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/jam.2012.5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:13:y:2012:i:3:d:10.1057_jam.2012.5

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/jam.2012.5

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().