Does Total Risk Matter? The Case of Emerging Markets

Eric Girard () and Amit Sinha
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Eric Girard: Siena College, U.S.A.
Amit Sinha: Indiana State University, U.S.A.

Multinational Finance Journal, 2006, vol. 10, issue 1-2, 117-151

Abstract: This paper examines the relationships between market risk premiums, time-varying variance and covariance in forty-eight emerging, and seven developed capital markets. We allow each market’s risk premium generating process to be state-dependent by accounting for negative and positive market price of variance and covariance risk. We find that half of the emerging markets exhibit reward to world variance while for the other half are only sensitive to local risk factors. We also find evidence of a negative relationship between reward to local risk and reward to world risk. Accordingly, the relative importance of one reward versus the other depends on the ever-changing correlation with the world market. Finally, we show that correlation is not a factor that explains reward to local risk in few segmented capital markets.

Keywords: reward to risk; conditional risk; market price of risk; multivariate GARCH (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:10:y:2006:i:1-2:p:117-151

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