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The main purpose of this paper is to compare the performance of portfolio strategies, comprising investments in emerging markets alone, and those strategies of combining investment in emerging and developed markets. The major finding of this paper is: the portfolio strategy combining investment in emerging markets with that in developed markets does not offer any additional value over a portfolio strategy confining investments to the emerging markets only. This paper, therefore, recommends a strategy that emphasizes country selection from emerging markets alone.

This paper investigates the behavior of stock returns and volatility in 10 emerging markets and compares them with those of developed markets under different measures of frequency (daily, weekly, monthly and annual) over the period January 1, 2002 to December 31, 2006. The ratios of mean return to volatility for emerging markets are found to be higher than those of developed markets. Sample statistics for stock returns of all emerging and developed markets indicate that return distributions are not normal and return volatility shows clustering. In most cases, GARCH (1, 1) specification is adequate to describe the stock return volatility. The significant lag terms in the mean equation of GARCH specification depend on the frequency of the return data. The presence of leverage effect in volatility behavior is examined using the TAR-GARCH model and the evidence indicates that is not present across all markets under all measures of frequency. Its presence in different markets depends on the measure of frequency of stock return data.