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Exchange Rate Regimes, Globalisation And The Cost Of Capital In Emerging Markets

We use a multifactor asset pricing model for currency, bond and stocks for fourteen emerging markets over the period from 1997 to middle 2001 to investigate the effect of the exchange rate regime on the cost of capital, the integration of financial emerging markets and the issue of contagion. We find no evidence that a fixed exchange rate regime has helped to reduce the cost of capital and we are not able to reject that emerging equity markets are integrated. Finally, there is evidence that the transmission of shocks is beyond of what can be explained by fundamentals or common shocks.

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Paper provided by CEMFI in its series Working Papers with number wp2004_02.

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Date of creation: Jan 2004
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Handle: RePEc:cmf:wpaper:wp2004_02
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  1. Vlaar, Peter J G & Palm, Franz C, 1993. "The Message in Weekly Exchange Rates in the European Monetary System: Mean Reversion, Conditional Heteroscedasticity, and Jumps," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 351-60, July.
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  11. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
  12. Sentana, Enrique & Fiorentini, Gabriele, 2001. "Identification, estimation and testing of conditionally heteroskedastic factor models," Journal of Econometrics, Elsevier, vol. 102(2), pages 143-164, June.
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  27. Gary Chamberlain & Michael Rothschild, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," NBER Working Papers 0996, National Bureau of Economic Research, Inc.
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