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Global economic activity as an explicator of emerging market equity returns

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  • Graham, Michael
  • Peltomäki, Jarkko
  • Piljak, Vanja

Abstract

This paper evaluates whether global economic activity, measured by the maritime index and commodity index, is a distinct common factor in explaining equity returns in emerging markets. We document two important features of global equity markets that show that emerging market equities are a segregated part of the global stock market. First, our results show that increases in global economic activity are associated with higher emerging market equity returns. Second, companies in developed markets that have a significant exposure in emerging markets have incremental exposure to commodity returns. By allocating more capital to emerging market equities, an investor increases portfolio exposure to changes in global economic activity.

Suggested Citation

  • Graham, Michael & Peltomäki, Jarkko & Piljak, Vanja, 2016. "Global economic activity as an explicator of emerging market equity returns," Research in International Business and Finance, Elsevier, vol. 36(C), pages 424-435.
  • Handle: RePEc:eee:riibaf:v:36:y:2016:i:c:p:424-435 DOI: 10.1016/j.ribaf.2015.09.030
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    Cited by:

    1. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2017. "Interest rate dynamic effect on stock returns and central bank transparency: Evidence from emerging markets," Research in International Business and Finance, Elsevier, pages 951-962.
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:312-320 is not listed on IDEAS

    More about this item

    Keywords

    Baltic Dry Index; Commodity factors; Emerging stock markets;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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