Quantitative Investing for the Global Markets, Peter Carman, Ed., 1997, Glenlake, forthcoming.

The Cross-Sectional Determinants of Emerging Equity Market Returns

Geert Bekaert
Stanford University, Stanford CA, 94305
National Bureau of Economic Research, Cambridge, MA 02138

Claude B. Erb
First Chicago Investment Management Co., Chicago, IL 60670

Campbell R. Harvey
Duke University, Durham, NC 27708
National Bureau of Economic Research, Cambridge, MA 02138

Tadas E. Viskanta
First Chicago Investment Management Co., Chicago, IL 60670

Abstract

We explore the cross-sectional determinants of emerging equity market returns. We find that the behavior of emerging market returns differs substantially from the behavior of developed equity market returns and that these differences have persisted in the period ending June 1996. While there are some similarities between the cross-sectional determinants of emerging and developed market equity returns, emerging market strategies must take into account the special characteristics of these markets. In particular, the degree of integration of these markets with world equity markets has changed through time. This time-varying integration must be taken into account in asset allocation strategies.