Risk Diversifications in Emerging Economies

This study shows how risk can be decreased by diversification in emerging economies. Results for diversification and correlation tests indicate that Arab Stock Markets are an ideal place for diversification for investors of developed countries. This paper evaluates stock prices as a leading indicato...

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Bibliographic Details
Published in:Risk management (Leicestershire, England) England), 2007-02, Vol.9 (1), p.36-43
Main Author: Abumustafa, Naser I
Format: Article
Language:English
Subjects:
Capital markets
Causality
Corporate profits
Correlation
Credit ratings
Cross-national analysis
Developed countries
Diversification
Economic growth
Economic models
Economic reform
Economics and Finance
Egypt
Emerging markets
Finance
Financial investments
Financial risks
Granger causality
Gross domestic product
Institutional investments
Investment policy
Investment risk
Investors
Jordan
Kurtosis
Kuwait
Middle East
Morocco
Mutual funds
Portfolio diversification
Portfolio management
Prices
Risk Management
Saudi Arabia
Securities markets
Skewness
Stock exchange
Stock exchanges
Stock markets
Stock prices
Studies
Tunisia
Volatility
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Summary:This study shows how risk can be decreased by diversification in emerging economies. Results for diversification and correlation tests indicate that Arab Stock Markets are an ideal place for diversification for investors of developed countries. This paper evaluates stock prices as a leading indicator of economic activity. Time-series analysis and the notion of "Granger causality" are used in this project to estimate relationships between stock prices and the economy, and to see whether they are consistent with theory. We show that the higher the causality between stock market capital and gross domestic product (GDP) in any economy, the lower the risk. Results indicate evidence of causality between stock market capital and GDP in the seven countries.
ISSN:1460-3799
1743-4637
DOI:10.1057/palgrave.rm.8250021