International Portfolio Diversification : An Evidence from Developed, Emerging and Frontier Markets

This study investigated the investment opportunities offered by the frontier equity markets to international portfolio investor. We examine eleven portfolios and efficient frontiers by using the Morgan Stanley Capital International (MSCI) classification of developed, emerging and frontier markets. Allowing exposure to the frontier markets permits international investors to expand combinations in the risk-return space. The results confirms that frontier markets are negatively correlated to the developed and developing countries, offer most optimal risk, and returns combination. These results are consistent both in case of short selling and without short selling. Such findings might be helpful to construct optimal portfolios as well as empirical applications in investment theory