Country and Currency Risk Premia in an Emerging Market

Ian Domowitz, Jack Glen and Ananth Madhavan

Journal of Financial and Quantitative Analysis, 1998, vol. 33, issue 2, 189-216

Abstract: The magnitude and determinants of credit and currency risks are topics of considerable importance. This paper uses data on peso- and dollar-denominated debt issued by the Mexican government to identify currency and country risk premia. We show that shocks in equity and debt market returns translate into long-term increases in the premium demanded by investors with respect to currency and country factors. Country and currency premia help explain equity returns and closed-end fund discounts. Additional evidence is provided showing that investors did not anticipate the magnitude or timing of the currency devaluation of December 1994 and the subsequent financial crisis.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:33:y:1998:i:02:p:189-216_00

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