Are global systematic risk and country-specific idiosyncratic risk priced in the integrated world markets?

C. Hueng

International Review of Economics & Finance, 2014, vol. 33, issue C, 28-38

Abstract: Empirical evidence showing significant effects of local factors on international equity returns while failing to find significant effects from global systematic risk seems counter-intuitive in today's integrated world markets. This paper uses the conditional second moments estimated from an asymmetric dynamic conditional correlation model to measure the time-varying world beta and country-specific idiosyncratic risks, and tests the relationship between country-level index returns and world beta risk conditioned on positive and negative world market returns. The results show that the conditional dynamic world beta risks significantly predict the cross-country variation in expected index returns, while country-specific risk is not significantly priced.

Keywords: World beta risk; Country-specific idiosyncratic risk; Dynamic conditional correlation model (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:33:y:2014:i:c:p:28-38

DOI: 10.1016/j.iref.2014.03.005

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