Abstract
The objectives of this article are to: 1) examine the short-term and long-term integration among the emerging markets and developed markets, and 2) evaluate the benefits of portfolio diversification for the investors of developed countries. Results of correlation and Granger causality found a lack of short-term integration among the markets. The co-integration test reveals a lack of long-term strong integration among the market returns and it also indicates the scope of portfolio diversification for investors. Investors involved with developed markets can have a better Sharpe ratio, higher returns, and lower risk through the diversification of their portfolio as compared to investing in just their home markets. Among all the diversification strategies, the maximum Sharpe ratio is the most rewarding strategy. Investors can enjoy gains in the risk-return tradeoff and in their wealth by diversifying their portfolios.
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