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On the Determinants of Equity International Risk Premium: Are Emerging Zones Different?

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Author Info

  • Khaled Guesmi

    ()
    (Department of Finance, IPAG Business School, IPAG Lab & EconomiX, University of Paris West, France)

  • Mohamed Hedi Arouri

    ()
    (EDHEC Business School)

  • Ilyes Abid

    ()
    (EconomiX, UMR CNRS 7166, University of Paris West, La Defense)

  • Frédéric Teulon

    ()
    (Department of Finance, IPAG Business School, IPAG Lab, France)

Abstract

This article contributes to the financial literature by investigating the formation of the international stock risk premium in emerging market zones. Our results from the estimation of a dynamic augmented capital asset pricing model show that the currency risk premium is the most important component of the total premium followed by the global market premium. As for the regional risk, our findings show that it is significantly priced for all studied emerging regions but its contribution to the total risk premium is weak.

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File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I1-P56.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 33 (2013)
Issue (Month): 1 ()
Pages: 597-611

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Handle: RePEc:ebl:ecbull:eb-12-00921

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Keywords: international asset pricing; equity risk premium; financial integration; emerging markets; multivariate GARCH;

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References

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  1. Arouri, Mohamed El Hedi & Nguyen, Duc Khuong & Pukthuanthong, Kuntara, 2012. "An international CAPM for partially integrated markets: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2473-2493.
  2. Khaled Guesmi & Duc Khuong Nguyen, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," EconomiX Working Papers 2011-9, University of Paris West - Nanterre la Défense, EconomiX.
  3. Khaled Guesmi, 2011. "Time varying regional integration in emerging stock market," Economics Bulletin, AccessEcon, vol. 31(2), pages 1082-1094.
  4. Francesca Carrieri, 2001. "The Effects of Liberalisation on Market and Currency Risk in the European Union," European Financial Management, European Financial Management Association, vol. 7(2), pages 259-290.
  5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
  6. Mohamed El Hedi Arouri, 2006. "Are Stock Markets Integrated? Evidence from a Partially Segmented ICAPM with Asymmetric Effects," Working Papers hal-00387109, HAL.
  7. Carrieri, Francesca & Errunza, Vihang & Hogan, Ked, 2007. "Characterizing World Market Integration through Time," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(04), pages 915-940, December.
  8. Tai, Chu-Sheng, 2007. "Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets," Emerging Markets Review, Elsevier, vol. 8(4), pages 264-283, December.
  9. Gikas A. Hardouvelis & Dimitrios Malliaropulos & Richard Priestley, 2006. "EMU and European Stock Market Integration," The Journal of Business, University of Chicago Press, vol. 79(1), pages 365-392, January.
  10. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
  11. Geert Bekaert & Campbell R. Harvey, 1994. "Time-Varying World Market Integration," NBER Working Papers 4843, National Bureau of Economic Research, Inc.
  12. Errunza, Vihang & Losq, Etienne, 1985. " International Asset Pricing under Mild Segmentation: Theory and Test," Journal of Finance, American Finance Association, vol. 40(1), pages 105-24, March.
  13. De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
  14. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  15. Gerard, Bruno & Thanyalakpark, Kessara & Batten, Jonathan A., 2003. "Are the East Asian markets integrated? Evidence from the ICAPM," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 585-607.
  16. De Santis, Giorgio & Gerard, Bruno & Hillion, Pierre, 2003. "The relevance of currency risk in the EMU," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 427-462.
  17. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
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Citations

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Cited by:
  1. Khaled Guesmi & Duc Khuong Nguyen & Frédéric Teulon, 2013. "Further evidence on the determinants of regional stock market integration in Latin America," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(3), pages 397-413, December.
  2. Selim Mankaï & Khaled Guesmi, 2014. "Robust Portfolio Protection: A Scenarios-Based Approach," Working Papers 2014-394, Department of Research, Ipag Business School.

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