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Equity Risk Premium and Regional Integration

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  • Mohamed El Hedi Arouri

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

  • Christophe Rault

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans, EDHEC (Ecole des Hautes Etudes Commerciales) - EDHEC (Ecole des Hautes Etudes Commerciales))

  • Frédéric Teulon

    (IPAG - Institut de Planétologie et d'Astrophysique de Grenoble - CNRS : UMR5274 - INSU - Université Joseph Fourier - Grenoble I - OSUG)

Abstract

This article contributes to the literature on stock market integration by developing and estimating a capital asset pricing model with segmentation effects in order to assess stock market segmentation and its effects on risk premia at the regional level. We show that the estimated degrees of segmentation vary from one region to anther and over time. Moreover, we establish that compared to developed market regions, emerging market regions have four main dissimilarities: the total risk premiums are significantly higher, more volatile, dominated by regional residual risk factors and reflect mostly regional events. However, in the recent period emerging market regions have become less segmented as a result of liberalization and reforms and the relative magnitude of the premium associated with global factors has increased.

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Paper provided by HAL in its series Working Papers with number hal-00798052.

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Date of creation: 07 Mar 2013
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Handle: RePEc:hal:wpaper:hal-00798052

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Cited by:
  1. Lau, Chi Keung Marco & Demir, Ender & Bilgin, Mehmet Huseyin, 2013. "Experience-based corporate corruption and stock market volatility: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 17(C), pages 1-13.

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