Frank de Jong () (University of Amsterdam, CEPR) Frans A. de Roon (CentER, Tilburg University)
Abstract
We use a simple model in which the expected returns in emerging markets depend on their systematic risk as measured by their beta relative to the world portfolio as well as on the level of integration in that market. The level of integration is a time-varying variable that depends on the market value of the assets that can be held by domestic investors only versus the market value of the assets that can be traded freely. Our empirical analysis for 30 emerging markets shows that there are strong effects of the level of integration or segmentation on the expected returns in emerging markets. The expected returns depend both on the level of segmentation of the emerging market itself and on the regional segmentation level. We also find that there is significant time-variation in the betas relative to the world portfolio because of the level of segmentation. For the composite index of the emerging markets we find an annual increase in beta of 0.09 due to decreased segmentation of the emerging markets in our sample period. In terms of expected returns the total effect on the composite index translates into an average decrease of 4.5 percent per annum. As predicted by our model, the noninvestable assets are more sensitive to the local and less to the regional level of segmentation than the investable assets. These conclusions do not change when using additional control variables. We do not find a clear pattern between volatility and segmentation, however.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Driesprong, G. & Jacobsen, B. & Maat, B., 2003.
"Striking Oil: Another Puzzle,"
Research Paper
ERS-2003-082-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
[Downloadable!]