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Primary Article

Is There a Free Lunch in Emerging Market Equities?

Geert Bekaert and Michael S. Urias
The Journal of Portfolio Management Spring 1999, 25 (3) 83-95; DOI: https://doi.org/10.3905/jpm.1999.319718
Geert Bekaert
An associate professor at the Graduate School of Business at Stanford University in Stanford (CA 94305).
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Michael S. Urias
A vice president at Morgan Stanley Dean Witter & Co., Inc., in New York (NY 10036).
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Abstract

Several studies have characterized investments in emerging markets as a ‘free lunch,’ arguing that there are significant diversification benefits for globally minded investors. The conclusions reached by emerging market proponents depend critically on an investor's ability to achieve the performance of the market indexes used in the calculation of means and correlations. The authors argue that a more realistic picture of the true diversification benefits from emerging equity markets is available from three investment vehicles the provide access to emerging market returns, while circumventing many of the restrictions and costs that limit the conclusion of previous emerging market research. For these three in vestment vehicles-closed-end mutual funds, open-end mutual funds, and ADRs-the authors find, based on mean-variance spanning tests, that diversification benefits from emerging equity markets are sensitive to the particular investment vehicle. The authors discuss the implications for diversification benefits as equity markets in emerging economies mature.

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The Journal of Portfolio Management
Vol. 25, Issue 3
Spring 1999
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Is There a Free Lunch in Emerging Market Equities?
Geert Bekaert, Michael S. Urias
The Journal of Portfolio Management Apr 1999, 25 (3) 83-95; DOI: 10.3905/jpm.1999.319718

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Is There a Free Lunch in Emerging Market Equities?
Geert Bekaert, Michael S. Urias
The Journal of Portfolio Management Apr 1999, 25 (3) 83-95; DOI: 10.3905/jpm.1999.319718
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