emerging market not fully intergrated with correlation eff.=1?

emerging market is 70% integrated, 30% not intergrated, for this 30%, why we should use correlation efficient =1 to calculate ERP? since it is not integrated for those 30%, we should use correlation efficient 0 right, if fully intergrated, we should correlation efficient =1 to calculate ERP,

if more intergrated, the correlation efficient increase near 1, isn’t it?

maybe you should again read the book for this part.

for the 70% integrated - the world market affects it more. so correlation coefficient corresponds to the markets correlation with the GIM.

For the 30% not integrated (segmented) - the LOCAL market - with which it has a Correlation of 1 - affects it completely.

You mean we use two correlation eff ,the first with global market, The second with local market?

it is in the book with a fully solved worked example.

for the integrated - calculate Rp with correlation.

for the segmented - calculate Rp with 1

then do 0.7 * Integrated Rp + 0.3 * Segmented Rp to get the market Rp.

Also don’t forget to add the illiquidity premium for the relevant country…

^ +1