Do U.S. Investors Benefit from Investing in Frontier Equity Markets?

Abstract

This study examines whether investing in frontier markets is beneficial to U.S. investors. The results are not so encouraging. First, the change in currency exchange rate weakens the benefit of overseas investment. Second, the correlations between the U.S. market and the frontier markets rose over time. Third, most of the frontier markets in the sample scored lower Sharpe Ratios than the U.S. market. Fourth, the frontier markets and their currency markets move in the same direction. Finally, frontier markets are more sensitive to the U.S. market return when it falls rather than when it rises.