Emerging Markets Pose High Risk and Potential for Large Returns
Emerging markets have high returns on investments and are influenced by US market movements. The study looks at stock market returns, capital returns, and sovereign bonds to understand this. The researchers suggest that long-term economic growth uncertainty abroad plays a big role in these differences. The model shows that return differences are at least 55% due to this uncertainty. The relationship between US and foreign asset returns can give insight into the level of risk in foreign investments.