Footnote:
In: Journal of Portfolio Management, Vol. 20, No. 3, pp. 76-81, 1994
Description:
Stock markets in emerging economies are often surrounded by a fast-pace real and monetary growth. The high returns typical of those markets continue to attract foreign investors who are looking to enhance the performance of their portfolios. A number of studies demonstrate the advantage of international diversification due to a comparatively low correlation between stock returns in developed and emerging markets, an advantage expressed in terms of risk-return tradeoff. In this study, we empirically examine the role of exchange rate risk in determining the benefits from international diversification. While a number of studies conclude that those benefits are enhanced by hedging the exchange rate risk, we find that such a hedge may decrease the gain from diversification between a developed market and a high-risk emerging one