Working Paper: NBER ID: w4990
Authors: Geert Bekaert; Michael S. Urias
Abstract: Using an extensive new data set on U.S. and U.K.-traded closed- end funds, we examine the diversification benefits from emerging equity markets and the extent of their integration with global capital markets. To measure diversification benefits, we exploit the duality between Hansen-Jagannathan bounds [1991] and mean-standard deviation frontiers. We find significant diversification benefits for the U.K. country funds, but not for the U.S. funds. The difference appears to relate to differences in portfolio holdings. To investigate global market integration, we compute the reduction in expected returns an investor would be willing to accept to avoid investment barriers in six countries. We find evidence of investment restrictions for Indonesia, Taiwan and Thailand, but not for Korea, the Philippines or Turkey.
Keywords: emerging markets; closed-end funds; diversification; market integration
JEL Codes: G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of fund (G23) | diversification benefits (G11) |
| UK country funds (G23) | diversification benefits (G11) |
| US funds (F31) | diversification benefits (G11) |
| investment barriers (F23) | market integration (F02) |
| investment barriers (F23) | expected returns (G17) |