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Determinants of Country Beta Risk in Poland

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  • Piotr Wdowinski

Abstract

In the paper we analyze determinants of the capital market beta risk in Poland in the monthly period 1996-2002. The beta risk is measured as a time-varying parameter estimated in a regression of the Warsaw stock indexes (WIG and WIG20 separately) on major foreign stock market indexes (DJIA, NASDAQ, DAX and FTSE). The individual monthly beta parameters time series are computed as structural regression parameters estimated for daily data in monthly sub-periods in regressions for WIG and WIG20 indexes on individual foreign stock market indexes. The beta risk is an average of monthly individual beta parameters. We put forward a hypothesis that the estimated beta risk depends on monetary and real variables expressing the economic performance of the Polish economy. Hence, we build monetary and real factors models. As explanatory variables of risk, we examine: income, productivity, trade balance, budget deficit, interest rate and the zloty exchange rate. The risk factors are expressed as differentials relative to the world economy for which stands the U.S. economy. According to Fair and Shiller (1990), we test for relative one-period-ahead predictive performance of monetary and real factors models of capital market risk in Poland in the period 1999-2002. We find that monetary variables as exchange rate and interest rate have relatively more power than real variables in explaining the beta market risk in Poland.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-01/cesifo1_wp1120.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1120.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1120

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Keywords: country beta risk; capital market; risk modelling; econometric model; forecasting; Poland;

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References

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  1. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November.
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  7. Geske, Robert & Roll, Richard, 1983. " The Fiscal and Monetary Linkage between Stock Returns and Inflation," Journal of Finance, American Finance Association, vol. 38(1), pages 1-33, March.
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  9. Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 51(1), pages 3-53, March.
  10. Abell, John D. & Krueger, Thomas M., 1989. "Macroeconomic influences on beta," Journal of Economics and Business, Elsevier, vol. 41(2), pages 185-193, May.
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  12. Gangemi, Michael A. M. & Brooks, Robert D. & Faff, Robert W., 2000. "Modeling Australia's country risk: a country beta approach," Journal of Economics and Business, Elsevier, vol. 52(3), pages 259-276.
  13. Bracker, Kevin & Koch, Paul D., 1999. "Economic determinants of the correlation structure across international equity markets," Journal of Economics and Business, Elsevier, vol. 51(6), pages 443-471.
  14. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  15. Alexander, Gordon J. & Benson, P. George, 1982. "More on Beta as a Random Coefficient," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(01), pages 27-36, March.
  16. Sunder, Shyam, 1980. " Stationarity of Market Risk: Random Coefficients Tests for Individual Stocks," Journal of Finance, American Finance Association, vol. 35(4), pages 883-96, September.
  17. Brooks, Robert D. & Faff, Robert W. & Yew, Kee Ho, 1997. "A new test of the relationship between regulatory change in financial markets and the stability of beta risk of depository institutions," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 197-219, February.
  18. Chang, Eric C. & Pinegar, J. Michael, 1987. "Risk and Inflation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 89-99, March.
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Cited by:
  1. Marshall, Andrew & Maulana, Tubagus & Tang, Leilei, 2009. "The estimation and determinants of emerging market country risk and the dynamic conditional correlation GARCH model," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 250-259, December.
  2. Piotr Wdowinski, 2005. "Financial Markets and Economic Growth in Poland: Simulations with an Econometric Model," CESifo Working Paper Series 1557, CESifo Group Munich.

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