Benefits of International Diversification: The Case of Asian Emerging Equity Markets

Apong, Matusin (2005) Benefits of International Diversification: The Case of Asian Emerging Equity Markets. [Dissertation (University of Nottingham only)] (Unpublished)

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The main purpose of this study is to examine whether, from the Brunei Investment Agency's perspective, the benefits of international diversification gain exist in equity investment in emerging markets in Asia. The quantitative research that was used is based on Markowitz's Modern Portfolio Theory (MPT). This method utilized data from December 1998 to July 2005 for sixteen indices of developed and emerging countries. The countries selected for the study were grouped into developed and emerging nations, to evaluate the benefits of diversifying into a group of countries. The risk of equity investment is represented by the standard deviation. In the study, the correlation coefficient matrix and the efficient frontier were constructed using GPAS (Global Portfolio Analysis Service) Mean-Variance Optimizer, in order to gain a better understanding of the benefits of international portfolio diversification. Using the Sharpe Ratio helped to eliminate the indices that offered high risk with low return and had positive correlations with each other. The purpose of this elimination process was to gain the maximum benefits from international portfolio diversification.

The findings suggest that it is feasible for BIA to construct an internationally diversified portfolio that is based on both developed and emerging markets, under certain conditions peculiar to these markets. This study also shows that the emerging markets in Asia are not short of indices that are lowly correlated to each other. In the context of portfolio diversification, this is good. If the indices of the emerging markets were highly correlated to each other, it would be difficult to construct a portfolio that was superior for risk reduction purposes. The results of this study show that international portfolio diversification is an excellent alternative that would enable BIA to reduce portfolio's risk and improve returns.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 06 Jan 2006
Last Modified: 26 Jan 2018 01:58

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