For decades, emerging markets have been marked by substantially higher volatility than developed markets have experienced. This history of high volatility has discouraged some investors, who fear loss of capital. But it has encouraged others to try to capitalize on the price movements by buying at the market bottom and selling as the prices move up.
One of the factors that contribute to volatility in emerging markets is the amount of international capital invested in them. When the mood of overseas investors shifts, large price fluctuations can occur. For example, during the East Asian financial crisis of 1997, investors who grew wary of emerging market investments pulled out of Latin American and Eastern European markets as well, depressing those economies despite their lack of economic ties with Asia.
As markets become larger, more efficient, and more regulated, they tend to be less volatile overall. But as the U.S. stock market bubble of the late 1990s demonstrates, even the largest markets can lose lots of value quickly if investors turn from buying to selling.
Jeffrey Rosensweig, Goizueta Business School, Emory University
Jeffrey Rosensweig, Goizueta Business School, Emory University 
