Prof. Dimson has found that the economies with the highest growth produce the lowest stock returns -- by an immense margin. Stocks in countries with the highest economic growth have earned an annual average return of 6%; those in the slowest-growing nations have gained an average of 12% annually.
WSJ 7/25: Under the 'Emerging' Curtain
Despite their explanation, this still doesn't make sense to me. If people are biased in believing that emerging markets will have higher returns, that would imply a profit opportunity, which means under an efficient market (and there is strong evidence to suggest efficiency) investors would put their money mostly into developed economies, which would drive up the prices until stocks of developed and emerging economies had approximately the same rates of return. ...Right?
