Modelling Emerging Market Risk Premia Using Higher Moments
AbstractThe purpose of this paper is to build an asset pricing model for emerging markets using higher moments. It is well-known that conventional CAPM models fail to explain the risk present in the data. The contribution of this paper is to use an extended CAPM that explicitly involves measures of skewness and kurtosis to capture the risk premium. The four- moment CAPM may be appropriate when the third and fourth moments are substantial. For estimating and testing the higher-moment CAPMs in emerging markets, the authors us a generalised method of moments which is distribution free and thus the preferred method to use because of the difficulty of accurately modelling return distribution in emerging markets. However, the paper also presents higher-moment models as the data generating process of the individual emerging markets. They are considered with higher-moment CAPMs, while reducing the multi-collinearity in the risk measures.
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Bibliographic InfoPaper provided by Warwick Business School, Financial Econometrics Research Centre in its series Working Papers with number wp99-17.
Date of creation: 1999
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Other versions of this item:
- Hwang, Soosung & Satchell, Stephen E, 1999. "Modelling Emerging Market Risk Premia Using Higher Moments," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(4), pages 271-96, October.
- Hwang, S. & Satchell, S. E., 1998. "Modelling Emerging Market Risk Premia using Higher Moments," Cambridge Working Papers in Economics 9806, Faculty of Economics, University of Cambridge.
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