Country selection of emerging equity markets: benefits from country attribute diversification

We propose a multivariate scoring model based on four classes of variables to predict future returns of 23 emerging equity markets. For the periods 1986-1995 and 1996-2003, our long-short portfolio (11 top/bottom ranked countries) posts a quarterly significant average raw return and a quarterly significant average market risk-adjusted return. The all-classes model dominates the one-class-models. Results from this strategy are robust regardless of whether we concentrate on the 6 top/bottom countries, reduce the emerging market universe to the largest countries, eliminate the most rewarding country during the period, use different scores, or account for realistic implementation costs.