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The Risk Exposure of Emerging Equity Markets

World Bank Economic Review, (1995): 19-50.

Campbell R. Harvey

Duke University, Durham, NC 27708, USA

National Bureau of Economic Research, Cambridge, MA 02138, USA


The low correlation between emerging equity market and developed market returns implies benefits to diversification in emerging markets. This paper explores the sensitivity of the emerging market returns to measures of global economic risk. Using these traditional measures of risk, the emerging markets have little or no sensitivity. This finding is consistent with these markets being segmented from world capital markets. However, the correlation between the emerging market returns and the risk factors appears to be changing through time.