Globalization and Opportunities for Investors in Emerging Stock Markets

Incorporating the extra risky stocks in portfolios can lead to realization of extra returns. Due to financial liberalization, there are huge opportunities of investment in Asian stock markets as these markets have gone through a considerable expansion. In large number of empirical studies of risk return analysis, it is observed that, economic stability and good perspectives have been key assets for the development of emerging markets. Thus emerging capital markets are becoming increasingly important for institutional as well as individual investors. Liberalization of financial systems in these emerging Asian markets have attracted domestic and foreign institutional investors to diversify their funds across the markets and reduce their portfolio risk. To examine the important aspects of investment strategy under risk and uncertainty the paper uses stock returns of five major stock markets of emerging economies, viz. China, South Korea, Taiwan, India, Malaysia. The daily stock price for the period January, 2011 to July, 2016 is used to study the impact of European sovereign-debt crisis and Chinese economic reform as well as currency devaluation on selected emerging markets. In this research we have carried out a detaile dinvestigation through ARCH and its generalized models to estimate conditional and asymmetric volatilities. Engle's LM (Lagrange Multiplier) test is used to confirm long periods of time with no evidence of ARCH effects as a diagnostic testing of fitted models. In this paper we have also examined the interdependent behavior of these emerging stock markets. Thus, Vector Autoregression (VAR) model is used to identify the channels of interactions.