Benefits of Diversifying in Emerging Markets - A Swedish Investor’s Perspective
Abstract: This paper evaluates the diversification possibilities in emerging markets for a Swedish investor. Two investors with different objectives, one seeks to minimize her risk and one seeks to maximize her risk-adjusted return, are examined. We investigate how non-normal distribution of returns affects the investments and if the benefits of diversification are decreasing over the time period 2006-2018. The study concludes that the correlation has decreased over time, which suggests that the benefits of investing in emerging markets for a Swedish investor is increasing with time. Twelve different portfolios are created to evaluate the results of the investors with different investment constraints and optimizations. We find that the risk minimizing investor will benefit from investing in emerging markets and the results for the investor seeking to maximize her risk-adjusted return are more inconclusive as they differ depending on which performance measure is used to evaluate the portfolios.
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