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Are global systematic risk and country-specific idiosyncratic risk priced in the integrated world markets?

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  • Hueng, C. James

Abstract

Empirical evidence showing significant effects of local factors on international equity returns while failing to find significant effects from global systematic risk seems counter-intuitive in today's integrated world markets. This paper uses the conditional second moments estimated from an asymmetric dynamic conditional correlation model to measure the time-varying world beta and country-specific idiosyncratic risks, and tests the relationship between country-level index returns and world beta risk conditioned on positive and negative world market returns. The results show that the conditional dynamic world beta risks significantly predict the cross-country variation in expected index returns, while country-specific risk is not significantly priced.

Suggested Citation

  • Hueng, C. James, 2014. "Are global systematic risk and country-specific idiosyncratic risk priced in the integrated world markets?," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 28-38.
    • Handle: RePEc:eee:reveco:v:33:y:2014:i:c:p:28-38
    DOI: 10.1016/j.iref.2014.03.005
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    Cited by:

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    3. Pelin Bengitöz & Mehmet Umutlu, 2023. "Are return predictors of industrial equity indexes common across regions?," Journal of Asset Management, Palgrave Macmillan, vol. 24(5), pages 396-418, September.

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    More about this item

    Keywords

    World beta risk; Country-specific idiosyncratic risk; Dynamic conditional correlation model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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