Investing in Emerging Markets: An Empirical Comparative Analysis

Abstract

Purpose: Investing in emerging markets may present a growing list of opportunities against a backdrop of additional risks because the drivers of returns in these markets are increasingly domestic and decreasingly global. Despite the proliferation of research on the risk involved in investing in emerging markets, very little is known on the distribution of their returns and their maximum expected losses. Therefore, the aim of this study was to fill in this gap. Design/Methodology/Approach: A Cramer-von Mises, Watson and Modified value at Risk approach was used on a sample of five emerging and five developed markets from May 11, 2018, to May 11, 2023. Findings: The findings revealed no significant difference in the returns distribution between these two markets but a much higher expected loss in emerging markets than their developed counterparts. Although investing in emerging markets may have growing opportunities. Implications/Originality/Value: Several strategies can be used to mitigate some of the risks involved. One strategy is to invest in a diversified portfolio of emerging market assets, which can help reduce exposure to individual country and sector risks. Another strategy is to invest in emerging market funds. This study is the first as per the author’s knowledge to provide an empirical comparative analysis between emerging markets and developed markets

Keywords

• Emerging Market
• Investing
• Cramer-von Mises
• Watson Test
• Modified value at Risk