School of Economics and Finance

Frontier Market Transaction Costs and Diversification Benefits

Date: 27 April 2012 Time: 12.30 pm
Venue: Rutherford House, Level 12 Boardroom, 23 Lambton Quay, Wellington
Speaker: Ben Marshall, Associate Professor, Massey University, Palmerston North

Abstract

Frontier markets, sometimes referred to as “emerging markets,” are attracting increased attention from investors. We form comprehensive measures of transaction costs using tick data for 19 frontier markets that are readily accessible to foreign investors. We show that several low-frequency liquidity measures correlate with actual transaction costs, but no measure consistently captures the magnitude of these transaction costs. The cost of trading is around three times that in the US, but the low correlations of these markets allow for diversification benefits that, on average, outweigh transaction costs from 2002 to 2010.