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Country and industry factors in tests of Capital Asset Pricing Models for partially integrated emerging markets

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  • Bai, Ye
  • Green, Christopher J.

Abstract

Existing literature has produced broadly inconclusive evidence about the asset pricing model which best fits partially integrated markets. This paper examines whether industry and country factors are independent factors helping to determine returns in emerging stock markets, or are derived from the stocks’ risk-return characteristics. We link the country-industry decomposition framework to the local and the Global CAPM in a new and more direct way. The results show that country factors are additional independent sources of cross-sectional variation in stock returns before 1996 particularly under the Global CAPM. After 1996, the results suggest partial integration: industry and country factors are both additional independent determinants of cross-sectional variations in stock returns. .

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  • Bai, Ye & Green, Christopher J., 2020. "Country and industry factors in tests of Capital Asset Pricing Models for partially integrated emerging markets," Economic Modelling, Elsevier, vol. 92(C), pages 180-194.
    • Handle: RePEc:eee:ecmode:v:92:y:2020:i:c:p:180-194
    DOI: 10.1016/j.econmod.2019.12.019
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    More about this item

    Keywords

    Emerging equity markets; CAPM; Cross-sectional variation; Country factors; Industry factors;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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