The Evolution of Risk Premiums in Emerging Stock Markets: The Case of Latin America and Asia Region
AbstractThis paper employs a conditional version of the International Capital Asset Pricing Model (ICAPM) to investigate the determinants of regional integration of stock markets in the Latin America and Asia over the period 1996-2008. This model allows for three sources of time-varying risks: common international market risk, exchange rate risk and regional market risk. At the empirical level, we make use of the asymmetric multivariate BEKK-GARCH of Baba et al. (1990) process to simultaneously estimate the ICAPM. Our results show that the currency risk premium is the most important component of the total premium followed by the global market premium. As for the regional risk, our findings show that it is significantly priced for our studied emerging regions but its contribution to the total risk premium is weak.
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Bibliographic InfoPaper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-132.
Length: 9 pages
Date of creation: 25 Feb 2014
Date of revision:
ICAPM; stock market integration; exchange rate risk;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-15 (All new papers)
- NEP-LAM-2014-03-15 (Central & South America)
- NEP-RMG-2014-03-15 (Risk Management)
- NEP-SEA-2014-03-15 (South East Asia)
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