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Testing the international capital asset pricing model with Markov switching model in emerging markets

Listed author(s):
  • Korkmaz, Turhan
  • Cevik, Emrah Ismail
  • Gurkan, Serhan

The purpose of this article is to examine the relationship between emerging markets and world index and to evaluate the risk of these countries. For this purpose Markov switching model (MS) is used to test ICAPM. The data range of 23 emerging markets that focused on is between January 1995 and April 2009. Empirical results obtained by using likelihood ratio (LR) test shows that MS-ICAPM is preferable to the linear model. The estimated beta coefficients (β) from linear model are between of the estimated beta coefficients (β0 and β1) from MS-ICAPM. These findings suggest that risk can be varying according to the current regime. With this perspective, it is clear that the empirical results in this study would be extremely useful for investors who invest in different countries’ stock market.

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File URL: https://mpra.ub.uni-muenchen.de/71481/1/MPRA_paper_71481.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 71481.

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Date of creation: 2010
Date of revision: 2010
Publication status: Published in Investment Management and Financial Innovations 1.7(2010): pp. 37-49
Handle: RePEc:pra:mprapa:71481
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