Diversification in Emerging Stock Markets - Research Paper Example

The low correlation amongst the various stock markets has often been used as a basis to support the diversification of investment portfolios. In fact, this correlation with each other amongst emerging stock market combined with further correlation amongst the stock markets of the developed world have served as lucrative options to global investors for diversifying their portfolios. However, studies on opportunities for international investors to invest in emerging markets like those in the Middle East, North Africa, and Russia have been limited and insufficient in providing ample reasons for considering the stock markets in these regions for diversification strategies.

This paper aims to achieve this purpose by conducting a thorough study of 8 major countries in the Middle East and Russia and the stock markets that operate within these countries. Specifically, this paper will cover the following countries: Saudi Arabia, Lebanon, Turkey, Tunisia, Morocco, Lebanon, Oman, and Russia. Much of the analysis is based on the application of quantitative techniques to data pertaining to the stock market indices from these countries, which is largely sourced from data repositories such as DataStream.

Further, to provide greater insight into diversification opportunities at an international level and to aid foreign investor in related decision-making, data of the United States S&P 500 index, the United Kingdom’s FTSE 100 index and the Paris CAC 30 will be used and compared with similar statistics for the countries in focus. The 9 countries that form the core of this study will henceforth be referred to as the ‘target group’ while the stock markets of the US, UK, and France will be known as the ‘world markets’.

The stock market returns recorded on a weekly basis in each country will be utilized for the study to identify patterns of co-movement between any of them.