Journal of Financial and Quantitative Analysis

Research Article

Re-Emerging Markets

William N. Goetzmanna1 and Philippe Joriona2

a1 Yale University, School of Management, Box 208200, New Haven, CT 06520–8200

a2 University of California at Irvine, Graduate School of Management, 350 GSM, Irvine, CA 92697–3125

Abstract

Recent research shows that emerging markets are distinguished by high returns and low covariances with global market factors. To check whether these results can be attributed to their recent emergence, we simulate a simple, general model of global markets with a realistic survival process. The simulations reveal a number of new effects. We find that pre-emergence returns are systematically lower than post-emergence returns, and that the brevity of a market history is related to the bias in returns as well as to the world beta. These patterns are confirmed by an empirical analysis of emerging and submerged markets.

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