The goal of this paper is to test empirically whether emerging‐market portfolios appear on the mean‐variance efficient frontier, investigate whether particular markets provide better diversification benefits, and to ascertain if these relationships are time‐invariant. Countries that are more economically independent from the United States (as measured by relatively low correlations of their stock markets to the United States, or intuitively as being markets whose real and monetary shocks are seemingly independent of the United States) provide better diversification for US investors. Though these relationships are time‐dependent, Mexico and China appear to be the most important diversifiers. We also compare the results of a mean‐variance framework versus a mean‐VaR (value‐at‐risk) framework that may be more applicable when return distributions are non‐normal, for the period May 1988–2018, and find that there are no significant differences.
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