This chapter explores the differences in diversification benefits attributable to individual regional frontier markets. We estimate time-varying correlations using a DCC–MGARCH–based copula model and examine the risk–return relationship using a modified value at risk approach that takes into account nonnormality in returns. We identify frontier Africa as producing the greatest diversification benefits to an international investor and frontier Europe as providing the least. We also find evidence to suggest that low correlation considered in isolation is not necessarily a good proxy variable for identifying optimal diversification benefits.
|Title of host publication
|Handbook of Frontier Markets
|Subtitle of host publication
|Evidence from Middle East, North Africa and International Comparative Studies
|Panagiotis Andrikopoulos, Greg N. Gregoriou, Vasileios Kallinterakis
|Place of Publication
|Number of pages
|Published - 2016
- international portfolio diversification
- frontier markets
- regional effects
- DCC copula
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