A1 Refereed original research article in a scientific journal
Global and Local Sources of Risk in Eastern European Emerging Stock Markets
Authors: Fedorova E, Vaihekoski M
Publisher: CHARLES UNIV-PRAGUE
Publication year: 2009
Journal: Finance a Uver-Czech journal of Economics and Finance
Journal name in source: FINANCE A UVER-CZECH JOURNAL OF ECONOMICS AND FINANCE
Journal acronym: FINANC UVER
Volume: 59
Issue: 1
First page : 2
Last page: 19
Number of pages: 18
ISSN: 0015-1920
Web address : http://ideas.repec.org/a/fau/fauart/v59y2009i1p2-19.html
Abstract
We study a pricing model for global and local sources of risk in six Eastern European emerging stock markets. Utilizing GMM estimation and an unconditional asset-pricing framework with and without time-varying betas, we perform estimations based on monthly data from 1996 to 2007 for Poland, the Czech Republic, Hungary, Bulgaria, Slovenia, and Russia. Most of these markets display considerable segmentation; the aggregate emerging market risk, as opposed to global market risk, is the significant driver for their stock market returns. It also appears that currency risk is priced into stock prices. The difference between local and global interest rates can be used to model the time-variation in the betas for both sources of risk.
We study a pricing model for global and local sources of risk in six Eastern European emerging stock markets. Utilizing GMM estimation and an unconditional asset-pricing framework with and without time-varying betas, we perform estimations based on monthly data from 1996 to 2007 for Poland, the Czech Republic, Hungary, Bulgaria, Slovenia, and Russia. Most of these markets display considerable segmentation; the aggregate emerging market risk, as opposed to global market risk, is the significant driver for their stock market returns. It also appears that currency risk is priced into stock prices. The difference between local and global interest rates can be used to model the time-variation in the betas for both sources of risk.
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