Is There a Free Lunch in Emerging Market Equities?

It is argued that a more realistic picture of the true diversification benefits from emerging equity markets is available from 3 investment vehicles that provide access to emerging market returns, while circumventing many of the restrictions and costs that limit the conclusions of previous emerging market research. For these 3 investment vehicles - closed-end mutual funds, open-end mutual funds, and ADRs - it is found, based on mean-variance spanning tests, that diversification benefits from emerging equity markets are sensitive to the time periods of the tests and, in some cases, to the particular investment vehicle. The implications for diversification benefits as equity markets in emerging economies mature are discussed.