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The volatility effect in emerging markets

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  • Blitz, David
  • Pang, Juan
  • van Vliet, Pim

Abstract

We examine the empirical relation between risk and return in emerging equity markets and find that this relation is flat, or even negative. This is inconsistent with theoretical models such as the CAPM, which predict a positive relation, but consistent with the results of studies for developed equity markets. The volatility effect appears to be growing stronger over time, which we argue might be related to the increased delegated portfolio management in emerging markets. Finally, we find that the volatility effect in emerging markets is only weakly related to that in developed equity markets, which argues against a common-factor explanation.

Suggested Citation

  • Blitz, David & Pang, Juan & van Vliet, Pim, 2013. "The volatility effect in emerging markets," Emerging Markets Review, Elsevier, vol. 16(C), pages 31-45.
    • Handle: RePEc:eee:ememar:v:16:y:2013:i:c:p:31-45
    DOI: 10.1016/j.ememar.2013.02.004
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    More about this item

    Keywords

    Volatility effect; Asset pricing; Emerging markets; CAPM; Alpha; Low volatility;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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