Emerging Market Question local, False, beyond, increase, developed

brain_wash_your

Emerging markets are subject to periodic crisis. Most of the time, the crisis does not spread beyond the local region. True or False

During the crisis, does that increase the correlation with developed markets - True/False

Colum

True and True in the mock

Valores

I will go with these answers based on CFAI mock.

bpdulog

ih8studying Wrote:
-------------------------------------------------------
> That's what I'm getting confused about. On one
> hand, it states that during periods of crises, the
> correlations increase which is ironic when you use
> emerging markets as diversifiers.
>
> Then they state a rebuttal stating that, in fact
> that correlations do NOT increase, rather it's
> just a case of increased volatilities?
>
> Or am I way off base?

That's exactly the way I read it. Correlations increase but it is an error in the way correlations are measured as volatility the denominator increases so covariances/correlations do not actually increase.

Literally the next pages contradicts the page before it.

bboo

That's what I'm getting confused about. On one hand, it states that during periods of crises, the correlations increase which is ironic when you use emerging markets as diversifiers.

Then they state a rebuttal stating that, in fact that correlations do NOT increase, rather it's just a case of increased volatilities?

Or am I way off base?

wake2000

pimpineasy Wrote:
-------------------------------------------------------
> correlations breakdown during crisis
> ..........devloped markets and developing nations
> exhibit higher correlations

Is that correct? I thought it was shown that the vol increase was a weakness of the measure and not necessarily increased correlations. Contagion situations do cause higher correlations but it is often very hard to prove contagion.

liangfeng

I think it was int he mock too

liangfeng

reading27

Darien

Thanks Goodman

wow what can i say i guess A is true , emerging market crisis are not likely to spread beyond its region


by the way where is this taken from exactly

IAmNeil

I misinterpret the local region as single country , it is many countries in a region