Equity Risk Premium Puzzle: Evidence from Indonesia and Sri Lanka

Prabath S. Morawakage, Pulukkuttige D. Nimal and Duminda Kuruppuarachchi

Bulletin of Indonesian Economic Studies, 2019, vol. 55, issue 2, 239-248

Abstract: This paper investigates the equity risk premium puzzle in the Indonesian and Sri Lankan stock markets in order to identify the relationship between the volatility of excess returns and the equity risk premium. The asymmetric impact of negative shocks on the equity risk premium is also examined using threshold and exponential GARCH-M models. We analyse data on the excess returns of the Indonesian and Sri Lankan stock markets from 2004 to 2013, and we find that the impact of the conditional volatility of excess returns on the equity risk premium is not significant in either country. Instead, we find an impact from negative return shocks on the equity risk premium only in Sri Lanka. Therefore, we conclude that investors are not compensated for the conditional volatility of the excess returns in these two markets, while Sri Lankan investors are compensated for the risk of negative shocks.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/00074918.2018.1529406 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:bindes:v:55:y:2019:i:2:p:239-248

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CBIE20

DOI: 10.1080/00074918.2018.1529406

Access Statistics for this article

Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

More articles in Bulletin of Indonesian Economic Studies from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().