Acta Universitatis Danubius. Œconomica, Vol 13, No 6 (2017)

The Linkage between Emerging and Developed Markets: Implication for International Portfolio Diversification

Oladapo Fapetu, Olufemi Adewale Aluko

Abstract


This study is a holistic attempt to examine the linkage between emerging and developed markets between January 2012 and June 2016 using iShares MSCI Emerging Markets ETF and iShares MSCI World ETF to measure emerging and developed markets respectively. Employing three cointegration testing approach, this study reveals that there is no cointegration between emerging and developed markets, thus indicating that international portfolio diversification is feasible for investors holding financial assets in both markets. This finding suggests that investors can reduce risk by constructing a portfolio consisting of assets in both emerging and developed markets.

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