EconPapers    
Economics at your fingertips  
 

The evolution of risk premium as a measure for intra-regional equity market integration

Khaled Guesmi, Frédéric Teulon and Ahmed Taneem Muzaffar

International Review of Financial Analysis, 2014, vol. 35, issue C, 13-19

Abstract: We estimate and test the conditional version of an international capital asset pricing model using a parsimonious multivariate GARCH process and the multivariate nonlinear least squares method. Since our approaches are fully parametric, we can recover any quantity that is a function of the first two conditional moments. Our findings strongly support using a model that includes both regional market and foreign exchange risk. However, both sources of risk are detected only when their prices are allowed to change over time. Our empirical results show clear evidence of market integration to varying degrees, explained by the US term premium and the level of market openness. Though it reaches high values during turmoil periods and exhibits an upward trend toward the end of the estimation period, the Indonesian stock market remains partially integrated into the ASEAN-5 regional market. These results suggest that diversification into Indonesian market assets continues to produce substantial profits and that asset pricing rules should reflect a state of partial integration.

Keywords: Time-varying integration; Risk premium; ICAPM; Multivariate GARCH (search for similar items in EconPapers)
JEL-codes: C32 F36 G11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521914000957
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Evolution of Risk Premium as a Measure for Intra-regional Equity Market Integration (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:35:y:2014:i:c:p:13-19

DOI: 10.1016/j.irfa.2014.07.003

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-06-28
Handle: RePEc:eee:finana:v:35:y:2014:i:c:p:13-19