 Spatial linkages in international financial marketsQuantitative Finance, 2011, vol. 11, issue 2, 237-245 Abstract: Spatial dependency has been studied in several research areas, such as environmental criminology, economic geography, environmental sciences, and urban economics. However, it has essentially been overlooked in other subfields of economics and in the field of finance as a whole. A key element at stake is the definition of contiguity. In the context of financial markets, defining a metric distance is not a simple matter. In this article, we explore the notion of spatial dependency by formulating a spatial version of the capital asset pricing model (S-CAPM). Such a model specification makes it possible to account for alternative measures of distance between firms, such as market capitalization, the market-to-book, and other financial ratios. Our model is tested on a panel of 126 Latin American firms. In addition, we derive Value-at-Risk (VaR) measures from our S-CAPM formulation. We complement our discussion with Monte Carlo simulations aimed at quantifying the benefits of diversification in terms of VaR reduction. Keywords: Emerging markets; Financial engineering; Econometrics of financial markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:11:y:2011:i:2:p:237-245 Ordering information: This journal article can be ordered from DOI: 10.1080/14697680903127403 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
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