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Global and Local Sources of Risk in Eastern European Emerging Stock Markets

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Author Info
Elena Fedorova () (Lappeenranta University of Technology (LUT), School of Business)
Mika Vaihekoski () (Turku School of Economics (TSE), Lappeenranta University of Technology)

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Abstract

We study a pricing model for global and local sources of risk in six Eastern European emerging stock markets. Utilizing GMM estimation and an unconditional asset-pricing framework with and without time-varying betas, we perform estimations based on monthly data from 1996 to 2007 for Poland, the Czech Republic, Hungary, Bulgaria, Slovenia, and Russia. Most of these markets display considerable segmentation; the aggregate emerging market risk, as opposed to global market risk, is the significant driver for their stock market returns. It also appears that currency risk is priced into stock prices. The difference between local and global interest rates can be used to model the time-variation in the betas for both sources of risk.

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File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1149
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Publisher Info
Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 1 (January)
Pages: 2-19
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Handle: RePEc:fau:fauart:v:59:y:2009:i:1:p:2-19

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Related research
Keywords: market integration; segmentation; asset pricing; emerging markets; Eastern Europe country risk;

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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    Other versions:
  2. Hunter, Delroy M., 2006. "The evolution of stock market integration in the post-liberalization period - A look at Latin America," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 795-826, August. [Downloadable!] (restricted)
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    Other versions:
  4. Saleem, Kashif & Vaihekoski, Mika, 2008. "Pricing of global and local sources of risk in Russian stock market," Emerging Markets Review, Elsevier, vol. 9(1), pages 40-56, March. [Downloadable!] (restricted)
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  9. Antell, Jan & Vaihekoski, Mika, 2007. "International asset pricing models and currency risk: Evidence from Finland 1970-2004," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2571-2590, September. [Downloadable!] (restricted)
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