Effects of financial turmoil on financial integration and risk premia in emerging markets
Salem Boubakri (),
Cécile Couharde and
Journal of Empirical Finance, 2016, vol. 38, issue PA, 120-138
The aim of this article is to analyze how financial crises affect the dynamics of international financial integration and of the risk premia in emerging markets. Accordingly, we estimate a variant of the International Asset Pricing Model developed by Carrieri et al. (2007), allowing for time-varying stock market integration, in which we include the foreign currency risk. Our sample consists of monthly data for 12 emerging stock markets over the period 1988M3–2015M3. We find that while the financial integration of emerging stock markets has registered short-term reversals episodes in countries that have been exposed to national or/and regional financial crises, it has decreased in most of the emerging countries of our sample since the global crisis. Moreover, the upward trend in financial integration has not reduced the local market risk premium component as much as could be expected. However, the recent global crisis has induced a reassessment of the world market risk premium for all emerging countries, highlighting the global nature of the crisis.
Keywords: Emerging markets; Financial crises; Financial integration; IAPM; Risk premium (search for similar items in EconPapers)
JEL-codes: C32 F31 G12 (search for similar items in EconPapers)
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Working Paper: Effects of financial turmoil on financial integration and risk premia in emerging markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:38:y:2016:i:pa:p:120-138
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