Conditional pricing of currency risk in Africa's equity markets
Odongo Kodongo and
Kalu Ojah ()
Emerging Markets Review, 2014, vol. 21, issue C, 133-155
In this paper, we sought to establish whether Africa's volatile currencies drive equity risk premia. We use the SDF framework to estimate various conditional specifications of the International Capital Asset Pricing Model through generalized method of moments technique. Our results show strong evidence of conditional, time-varying currency risk premia in equity returns. Currency risk is also perceived by international investors as important in informing the equities pricing kernel. Interestingly, we find evidence that international investors are concerned about Africa's small size equity markets and build the impact of anticipated low trading into their pricing calculus.
Keywords: Africa; Currency risk; Equity markets; Stochastic discount factor; GMM (search for similar items in EconPapers)
JEL-codes: G12 G15 F21 F31 (search for similar items in EconPapers)
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Working Paper: Conditional Pricing of Currency Risk in Africa's Equity Market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:21:y:2014:i:c:p:133-155
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