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On the Determinants of Equity International Risk Premium: Are Emerging Zones Different?

  • Khaled Guesmi


    (Department of Finance, IPAG Business School, IPAG Lab & EconomiX, University of Paris West, France)

  • Mohamed Hedi Arouri


    (EDHEC Business School)

  • Ilyes Abid


    (EconomiX, UMR CNRS 7166, University of Paris West, La Defense)

  • Frédéric Teulon


    (Department of Finance, IPAG Business School, IPAG Lab, France)

This article contributes to the financial literature by investigating the formation of the international stock risk premium in emerging market zones. Our results from the estimation of a dynamic augmented capital asset pricing model 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 all studied emerging regions but its contribution to the total risk premium is weak.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 33 (2013)
Issue (Month): 1 ()
Pages: 597-611

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Handle: RePEc:ebl:ecbull:eb-12-00921
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  6. Khaled Guesmi, 2011. "Time varying regional integration in emerging stock market," Economics Bulletin, AccessEcon, vol. 31(2), pages 1082-1094.
  7. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios & Priestley, Richard, 1999. "EMU and European Stock Market Integration," CEPR Discussion Papers 2124, C.E.P.R. Discussion Papers.
  8. Errunza, Vihang & Losq, Etienne, 1985. " International Asset Pricing under Mild Segmentation: Theory and Test," Journal of Finance, American Finance Association, vol. 40(1), pages 105-24, March.
  9. Arouri, Mohamed El Hedi & Nguyen, Duc Khuong & Pukthuanthong, Kuntara, 2012. "An international CAPM for partially integrated markets: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2473-2493.
  10. 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.
  11. De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
  12. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  13. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  14. Khaled Guesmi & Duc Khuong Nguyen, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," EconomiX Working Papers 2011-9, University of Paris West - Nanterre la Défense, EconomiX.
  15. Geert Bekaert & Campbell R. Harvey, 1994. "Time-Varying World Market Integration," NBER Working Papers 4843, National Bureau of Economic Research, Inc.
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  17. Gerard, Bruno & Thanyalakpark, Kessara & Batten, Jonathan A., 2003. "Are the East Asian markets integrated? Evidence from the ICAPM," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 585-607.
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