THE RISK EXPOSURE OF EMERGING EQUITY MARKETS

The low correlation between returns in emerging equity markets and ind ustrial equity markets implies that the global investor would benefit from diversification in emerging markets. This article explores the se nsitivity of the emerging-market returns to measures of global economi c risk. When these traditional measures of risk are used, the emerging markets have little or no sensitivity. This finding is consistent wit h these markets' being segmented from world capital markets. However, the correlation between the emerging-market returns and the risk facto rs appears to be changing over time.