Benefit of International Diversification for Asian Emerging Markets

Abstract

ABSTRACT This study is to examine three important issues. The first one is identify the function of Asian financial markets. Secondly, we attempt to find whether there exists potential benefit of international diversification in five Asian emerging markets (China, South Korea, Vietnam, Taiwan and Thailand) to U.S investors during the period of ten years from 2006 to 2016. Actually, the global financial market, particularly the Asian financial market has had been suffered seriously from the financial crises over the past decades. Therefore, we will also demonstrate how changes on the opportunities of diversification of Asian markets before and after the financial crisis that will be analysed in the last part of this dissertation. To survey this study, we base on some statistics as market sizes, liquidity statistics of the observed Asian stock markets to obtain a general view about those markets. Besides, we use the co-integration method to investigate the existence of long term as well as short term relationship among the Asian Emerging markets and the US markets in terms of similar stock price movement or trends while accepting that there can be short term differences. In the empirical study, we employ the Markowitz’s Mean-Variance analysis to investigate why investing in Emerging markets can be attractive investment for developed countries by using portfolio theory to suggest diversification benefit, efficient frontier and optimal portfolio allocation for the two cases before and after the financial crisis 2008.