The Risky Capital of Emerging Markets

Felix Gerding, Espen Henriksen and Ina Simonovska
Authors registered in the RePEc Author Service: Joel David

No 20769, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We build a panel of stock market returns across 37 developed and developing countries spanning five decades. We document: (1) higher and more volatile returns in poorer over richer countries; (2) higher returns in countries with more sensitive dividends to changes in global predictable growth. We quantitatively explore whether consumption-based long-run risk can reconcile these patterns. When we estimate the parameters that govern the U.S. investor’s consumption growth and each market’s dividend growth process, the model generates higher risk premia in emerging over developed markets, and predicts levels and volatilities of stock market returns that are at par with data.

JEL-codes: E22 F21 G12 O4 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-mac and nep-opm
Note: AP DEV EFG IFM ITI PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Working Paper: The Risky Capital of Emerging Markets (2016)
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