Analysis of diversification benefits of investing in the emerging gulf equity markets

Abstract

Abstract Refers to previous research on the advantages of international portfolio diversification, gives an overview of the stock markets in Bahrein, Kuwait and Saudi Arabia; and assesses their sutiability for the purpose, especially as a hedge against oil price risk. Compares their 1993‐1998 monthly index returns and standard deviations with the USA, shows low or negative correlations between them and illustrates the potential this offers for risk reduction. Uses the Markowitz mean‐variance paradigm to estimate the effecient frontiers. Finds the results consistent with evidence from other emerging markets and points out that the stability of Gulf exchange rates against the US dollar also removes currency risk.

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