The well-documented day-of-the-week effect has shown that stock returns on some days of the week are often significantly higher than on other days. To investigate whether improvements in market efficiency may have caused this anomaly to disappear over time, this study examines the day-of-the-week effect in the world's largest developed equity markets over the last 22 years. The results indicate that, during the 1980s, this anomaly was clearly evident in the vast majority of developed markets, but it appears to have faded away in the 1990s. The implications of these findings are that long-run improvements in market efficiency may have diminished the effects of certain anomalies in recent periods.

By using recently developed statistical tools designed to overcome some of the limitations often associated with financial data, this study attempts to detect low-dimensional deterministic chaos in five major European stock markets and the United States. Country indexes exhibiting low-dimensional deterministic chaos may contain some informational inefficiency; thus, it may be possible to use nonlinear dynamics to predict future stock returns. The results do not provide evidence of the existence of low-dimensional chaotic systems in any of the examined indexes. As such, the notion of market efficiency in the examined indexes is not threatened by the findings of this study.

Finance theory suggests that the higher volatility typically associated with emerging stock market returns translates into higher expected returns in those markets. This study compares the risk and return profile of emerging and developed stock markets over the period from 1988 through April 2003. Specifically, this study investigates whether a difference in risk characteristics exists between the two markets and whether the realized rates of return in these two types of markets reflect these risk characteristics. The results show that the risk associated with emerging markets, as measured by the standard deviation of returns, is higher than the risk in developed markets in most periods. Also, the returns in emerging markets have been higher than those in developed markets for most of the time frames examined. The findings suggest that risk-averse investors seeking higher returns in emerging markets have been compensated for assuming the higher risk associated with these markets.

New investment opportunities provided by emerging markets have intrigued investors striving to obtain a better risk - return combination for their international portfolios. With this expanded opportunity set, however, come some important questions: to take full advantage of international diversification benefits in a growing global market arena, must investors design comprehensive portfolios involving numerous countries and complex weighting schemes or do smaller portfolios using simplified weighting strategies perform as well? Furthermore, are emerging markets really a valuable component of these internationally diversified portfolios, or is an investor better off avoiding these markets in favour of the more established developed markets? Using theoretical portfolios which incorporate emerging markets to different extents and which reflect varying degrees of portfolio breadth and different weighting schemes, this study finds that the incremental benefits of broad-scale diversification efforts using complex weighting strategies is small. Furthermore, in these relatively small, yet well-performing portfolios, emerging markets play a critical role. Overall, equally weighted portfolios which include some emerging markets that have positive economic forecasts and low correlations with the other countries in the portfolio can provide diversification benefits which are comparable to portfolios with more breadth and more complex weighting schemes.

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