B1 Non-refereed article in a scientific journal
Global and Local Sources of Risk in Eastern European Emerging Stock Markets
Authors: Elena Fedorova, Mika Vaihekoski
Publisher: Bank of Finland, Institute for Economies in Transition (BOFIT)
Publishing place: Helsinki
Publication year: 2008
Journal: BOFIT Discussion Papers
Issue: 27
Web address : http://www.suomenpankki.fi/bofit/tutkimus/tutkimusjulkaisut/dp/Documents/dp2708.pdf
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, Czech Republic, Hungary, Bulgaria, Slovenia and Rus-sia. 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 mar-ket returns. It also appears that currency risk is priced into tock prices. The difference be-tween 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, Czech Republic, Hungary, Bulgaria, Slovenia and Rus-sia. 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 mar-ket returns. It also appears that currency risk is priced into tock prices. The difference be-tween 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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