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Is currency risk priced for emerging stock markets?


  • Walid Chkili

    () (School of Business, Manouba University and International Finance Group-Tunisia)


In this paper we examine the relevance of currency risk in emerging countries using a conditional version of an international capital pricing model. Our results show that both currency risk and market risk are time-varying and priced in emerging stock markets. In particular, the currency risk premium is economically significant and represents a significant portion of the total risk premium during the crisis periods.

Suggested Citation

  • Walid Chkili, 2012. "Is currency risk priced for emerging stock markets?," Economics Bulletin, AccessEcon, vol. 32(3), pages 2267-2280.
  • Handle: RePEc:ebl:ecbull:eb-12-00112

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    References listed on IDEAS

    1. Antell, Jan & Vaihekoski, Mika, 2012. "Pricing currency risk in the stock market: Evidence from Finland and Sweden 1970–2009," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 120-136.
    2. Carrieri, Francesca & Errunza, Vihang & Majerbi, Basma, 2006. "Does Emerging Market Exchange Risk Affect Global Equity Prices?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 511-540, September.
    3. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    4. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
    5. Saleem, Kashif & Vaihekoski, Mika, 2010. "Time-varying global and local sources of market and currency risks in Russian stock market," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 686-697, October.
    6. Korajczyk, Robert A, 1996. "A Measure of Stock Market Integration for Developed and Emerging Markets," World Bank Economic Review, World Bank Group, vol. 10(2), pages 267-289, May.
    7. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    8. Guesmi, Khaled & Nguyen, Duc Khuong, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," Economic Modelling, Elsevier, vol. 28(6), pages 2517-2527.
    9. De Santis, Giorgio & Gerard, Bruno & Hillion, Pierre, 2003. "The relevance of currency risk in the EMU," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 427-462.
    10. Diamandis, Panayiotis F., 2009. "International stock market linkages: Evidence from Latin America," Global Finance Journal, Elsevier, vol. 20(1), pages 13-30.
    11. Chaieb, Ines & Errunza, Vihang, 2007. "International asset pricing under segmentation and PPP deviations," Journal of Financial Economics, Elsevier, vol. 86(2), pages 543-578, November.
    12. Walid, Chkili & Chaker, Aloui & Masood, Omar & Fry, John, 2011. "Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach," Emerging Markets Review, Elsevier, vol. 12(3), pages 272-292, September.
    13. Phylaktis, Kate & Ravazzolo, Fabiola, 2004. "Currency risk in emerging equity markets," Emerging Markets Review, Elsevier, vol. 5(3), pages 317-339, September.
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    More about this item


    International asset pricing model; Currency risk; Risk premium; Emerging markets;

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets


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