Emerging Market Risk Premiums

CFA Magazine ◽  
2005 ◽  
Vol 16 (2) ◽  
pp. 38-39
Author(s):  
Cynthia Harrington
Keyword(s):  
Emerging Market ◽  
Market Risk ◽  
Risk Premiums

Linear Beta Pricing with Inefficient Benchmarks

2013 ◽  
Vol 03 (01) ◽  
pp. 1350004 ◽  
Author(s):  
George Diacogiannis ◽  
David Feldman
Keyword(s):  
Asset Pricing ◽  
Market Risk ◽  
Expected Returns ◽  
Pricing Model ◽  
Pricing Models ◽  
Expected Return ◽  
Risk Premiums ◽  
Asset Pricing Models ◽  
Current Asset ◽  
Mean Variance

Current asset pricing models require mean-variance efficient benchmarks, which are generally unavailable because of partial securitization and free float restrictions. We provide a pricing model that uses inefficient benchmarks, a two-beta model, one induced by the benchmark and one adjusting for its inefficiency. While efficient benchmarks induce zero-beta portfolios of the same expected return, any inefficient benchmark induces infinitely many zero-beta portfolios at all expected returns. These make market risk premiums empirically unidentifiable and explain empirically found dead betas and negative market risk premiums. We characterize other misspecifications that arise when using inefficient benchmarks with models that require efficient ones. We provide a space geometry description and analysis of the specifications and misspecifications. We enhance Roll (1980), Roll and Ross's (1994), and Kandel and Stambaugh's (1995) results by offering a "Two Fund Theorem," and by showing the existence of strict theoretical "zero relations" everywhere inside the portfolio frontier.

scholarly journals The implications of first-order risk aversion for asset market risk premiums

1997 ◽  
Vol 40 (1) ◽  
pp. 3-39 ◽  
Author(s):  
Geert Bekaert ◽  
Robert J. Hodrick ◽  
David A. Marshall
Keyword(s):  
Risk Aversion ◽  
Market Risk ◽  
Asset Market ◽  
Risk Premiums ◽  
First Order

On commodity market risk premiums: Additional evidence

1985 ◽  
Vol 5 (1) ◽  
pp. 121-125 ◽  
Author(s):  
Jennefer Baxter ◽  
Thomas E. Conine ◽  
Maurry Tamarkin
Keyword(s):  
Market Risk ◽  
Commodity Market ◽  
Risk Premiums

scholarly journals Cross-sectional Volatility and Stock Returns: Evidence for Emerging Markets

2016 ◽  
Vol 41 (3) ◽  
pp. 234-246 ◽  
Author(s):  
Sanjay Sehgal ◽  
Vidisha Garg
Keyword(s):  
South Africa ◽  
Asset Pricing ◽  
South Korea ◽  
Stock Returns ◽  
Risk Premium ◽  
Emerging Market ◽  
Significant Risk ◽  
Residual Variance ◽  
Cross Sectional ◽  
Risk Premiums

Executive Summary Cross-sectional volatility measures dispersion of security returns at a particular point of time. It has received very little focus in research. This article studies the cross-section of volatility in the context of economies of Brazil, Russia, India, Indonesia, China, South Korea, and South Africa (BRIICKS). The analysis is done in two parts. The first part deals with systematic volatility (SV), that is, cross-sectional variation of stock returns owing to their exposure to market volatility measure ( French, Schwert, & Stambaugh, 1987 ). The second part deals with unsystematic volatility (UV), measured by the residual variance of stocks in a given period by using error terms obtained from Fama–French model. The study finds that high SV portfolios exhibit low returns in case of Brazil, South Korea, and Russia. The risk premium is found to be statistically significantly negative for these countries. This finding is consistent with Ang et al. and is indicative of hedging motive of investors in these markets. Results for other sample countries are somewhat puzzling. No significant risk premiums are reported for India and China. Significantly positive risk premiums are observed for South Africa and Indonesia. Further, capital asset pricing model (CAPM) seems to be a poor descriptor of returns on systematic risk loading sorted portfolios while FF is able to explain returns on all portfolios except high SV loading portfolio (i.e., P1) in case of South Africa which seems to be an asset pricing anomaly. It is further observed that high UV portfolios exhibit high returns in all the sample countries except China. In the Chinese market, the estimated risk premium is statistically significantly negative. This negative risk premium is inconsistent with the theory that predicts that investors demand risk compensation for imperfect diversification. The remaining sample countries show significantly positive risk premium. CAPM does not seem to be a suitable descriptor for returns on UV sorted portfolios. The FF model does a better job but still fails to explain the returns on high UV sorted portfolio in case of Brazil and China and low UV sorted portfolio in South Africa. The findings are relevant for global fund managers who plan to develop emerging market strategies for asset allocation. The study contributes to portfolio management as well as market efficiency literature for emerging economies.

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