Posted March 26, 2023 by Comments

A recent post on the CFA Institute’s Enterprising Investor blog talked in detail about a book, Cracking the Emerging Markets Enigma, by Cornell University professor Andrew Karolyi who created an emerging market risk index composed of six dimensions mostly related to market institutions:

  1. Market capacity constraints
  2. Operational inefficiencies
  3. Foreign investability restrictions
  4. The quality of legal protections for minority investors
  5. Corporate governance
  6. Disclosure issues

The following table details what contributes to political instability in Karolyi’s framework and the indices he uses to measure it: - Indices for Measuring Emerging Market Political Instability

Among Karolyi’s findings was that political instability has mattered both under “normal” stock market conditions over long periods of time and during crises. Moreover, those markets deemed less politically stable were underweighted more over the last decade and a higher percentage of capital exited them during the so-called taper tantrum.

To read the whole post, Where to Invest in Emerging Markets: Lessons from the Taper Tantrum, go to the Enterprising Investor blog on the website of the CFA Institute. In addition, Cracking the Emerging Markets Enigma is available from the Emerging Market Skeptic store.

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