Examining the nature of the gains from investment in the emerging stock markets of the Central and Eastern European region

This article examines the nature of any gains from investing in the emerging stock markets of Central and Eastern Europe using disaggregated data for 187 shares from eight stock exchanges over the period 1998 to 2003. The results suggest that gains exist; these gains are largest when diversification occurs across countries rather than via investment in different industries. However, the analysis also suggests that the returns earned by equities in these countries vary dramatically over time and, as such, may hamper the efforts of investors attempting to exploit this diversification 'free lunch'.