Pricing of global and local sources of risk in Russian stock market

This paper investigates whether global, local and currency risks are priced in the Russian stock market using conditional international asset pricing models. The estimation is conducted using a modified version of the multivariate GARCH-M framework of De Santis and Gérard [De Santis, G., Gérard, B., 1998, How big is the premium for currency risk? Journal of Financial Economics 49, 375–412]. We take US investors' point of view and use a sample period from 1995 to 2006. The results show that the world market risk together with the currency and local market risks are priced on the Russian stock market.     

Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets

This paper examines whether Asian emerging stock markets (India, Korea, Malaysia, Philippines, Taiwan, and Thailand) have become integrated into world capital markets since their official liberalization dates by estimating and testing a dynamic integrated international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) using an asymmetric multivariate GARCH(1,1)-in-Mean approach. Also examined in this paper is whether there are pure contagion effects between stock and foreign exchange markets for each Asian country during the 1997 Asian crisis. The empirical results show that first, both currency and world market risks are priced and time-varying, suggesting that an international asset pricing model under PPP and constant price of risk might give rise to model misspecification. Second, the stock markets for India, Korea, Malaysia, Philippines, and Thailand were segmented from the world capital markets before their liberalization dates, but all six markets have become fully integrated since then. Third, the market liberalization has reduced the cost of capital and price volatility for most of the countries. Finally, as for the contagion effects, strong positive impact of return shocks originating from the domestic stock market to its foreign exchange market during the crisis is found. This dynamic relationship between stock market and foreign exchange market is consistent with stock-oriented exchange rate models.     

Size, value and liquidity. Do They Really Matter on an Emerging Stock Market?

The paper extends the evidence on factors determining stock prices on emerging markets by focusing on the most advanced stock market in Central and Eastern Europe, the Polish market. Besides market, size and value factors, we investigate whether liquidity is a priced risk factor, addressing the hypothesis of its particular relevance in emerging markets. Our results support existing evidence for developed markets regarding market, size, and value factors. Contrary to the expectation that liquidity is a priced factor on emerging markets, we do not find evidence supporting this hypothesis. Analyzing specific market characteristics, we consider possible explanations behind these findings.     

Cross‐market correlations and transmission of information

We investigate characteristics of cross‐market correlations using daily data from U.S. stock, bond, money, and currency futures markets using a new multivariate GARCH model that permits direct hypothesis testing on conditional correlations. We find evidence that arrival of information in a market affects subsequent cross‐market conditional correlations in the sample period following the stock market crash of 1987, but there is little evidence of such a relationship in the precrash period. In the postcrash period, we also find evidence that the prime rate of interest affects daily correlations between futures returns. Furthermore, we find that conditional correlations between currency futures and other markets decline steeply a few months before the crash and revert to normal dynamics after the crash. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1059–1082, 2002     

Local currency systemic risk

Emerging country governments increasingly issue local currency denominated bonds and foreign investors have been increasing their holdings of these assets. By issuing debt denominated in local currency, emerging country governments eliminate exchange rate risk. The growing stock of local currency government debt in the financial portfolios of foreign investors increases their diversification and exposure to fast growing economies. In this paper, we highlight some of the risks associated to this recent trend. First, we adopt the CoV aR risk-measure to estimate the vulnerability of individual countries to systemic risk in the market for local currency government debt. Second, we show that our country-level estimates of vulnerability increase with the share of local currency debt held by foreign investors. A version of the old adage “When New York sneezes, London catches a cold,” used often to describe the relationship between the stock markets in these two cities, still applies between individual emerging countries and the aggregate market for local currency government debt.     

Exchange rate regimes, globalisation, and the cost of capital in emerging markets

This paper presents a multifactor asset pricing model for currency, bond, and stock returns for ten emerging markets to investigate the effect of the exchange rate regime on the cost of capital and the integration of emerging financial markets. Our results suggest that a fixed exchange rate regime system can help reduce the cost of capital in emerging markets by reducing the currency risk premia demanded by foreign investors.     

The anatomy of financial crises: Evidence from the emerging ADR market

We study the anatomy of recent financial crises in Mexico, East Asia, Russia, Brazil, Turkey, and Argentina by investigating the efficiency and pricing of the emerging American depositary receipt (ADR) market. We use a non-parametric technique to test for persistent regime shifts in two basic structural relationships for ADR returns in 20 emerging countries — identified via arbitrage and capital mobility considerations — that should always hold in efficient and integrated capital markets. We find that those “normal” market conditions were instead often violated in proximity of financial crises: The law of one price often weakened (by 54% on average) and domestic sources of risk became more important (often by more than 100%) for many emerging ADRs. We also find the likelihood of these regime shifts to be related to proxies for uncertainty among investors, exchange rate volatility, trade linkages, and liquidity (but not stock market trends, currency devaluations, capital flight, or capital controls).     

Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model

This study develops a consumption-based asset pricing model in which domestic consumers can buy goods from domestic and foreign markets but can only invest in domestic markets. In this model, the exchange rate influences asset prices through the marginal utility of consumption and increases the risks investors face. We find that our model can successfully price the 25 Fama–French portfolios and industry portfolios in the Chinese market, and the exchange rate is an important pricing factor in the unconditional linear model. We also find that the exchange risk is time-varying and countercyclical, which can help to explain the countercyclicality in equity premium.     

The anatomy of financial crises: Evidence from the emerging ADR market

We study the anatomy of recent financial crises in Mexico, East Asia, Russia, Brazil, Turkey, and Argentina by investigating the efficiency and pricing of the emerging American depositary receipt (ADR) market. We use a non-parametric technique to test for persistent regime shifts in two basic structural relationships for ADR returns in 20 emerging countries — identified via arbitrage and capital mobility considerations — that should always hold in efficient and integrated capital markets. We find that those “normal” market conditions were instead often violated in proximity of financial crises: The law of one price often weakened (by 54% on average) and domestic sources of risk became more important (often by more than 100%) for many emerging ADRs. We also find the likelihood of these regime shifts to be related to proxies for uncertainty among investors, exchange rate volatility, trade linkages, and liquidity (but not stock market trends, currency devaluations, capital flight, or capital controls).     

Half-day trading and spillovers

This paper investigates the linkage of returns and volatilities between the United States and Chinese stock markets from January 2010 to March 2020. We use the dynamic conditional correlation (DCC) and asymmetric Baba–Engle–Kraft–Kroner (BEKK) GARCH models to calculate the time-varying correlations of these two markets and examine the return and volatility spillover effects between these two markets. The empirical results show that there are only unidirectional return spillovers from the U.S. stock market to the Chinese stock market. The U.S. stock market has a consistently positive spillover to China’s next day’s morning trading, but its impact on China’s next day’s afternoon trading appears to be insignificant. This finding implies that information in the U.S. stock market impacts the performance of the Chinese stock market differently in distinct semi-day trading. Moreover, with respect to the volatility, there are significant bidirectional spillover effects between these two markets.     

Volatilities in emerging MENA stock markets

This article examines the interrelationships among the emerging stock markets of the Middle East and North Africa (MENA) region, as well as the relationship between each MENA stock market and the larger and more developed markets of Europe and the United States. It explores whether MENA stock markets can offer international investors unique risk/return characteristics to diversify international and regional portfolios. This study adds to the existing literature by focusing—for the first time— on the dynamic relationships in the volatilities of the returns in MENA stock markets. The econometric part of the article uses the causality‐in‐variances GARCH model, the TARCH and ARCH‐M models, and VAR analysis to model conditional volatilities in stock market returns and the dynamic responses of volatilities to innovations in conditional variances. © 2006 Wiley Periodicals, Inc.     

Dynamic return predictability in the Russian stock market

This paper explores whether the relevance of a conditional multifactor model and autocorrelation in predicting the Russian aggregate stock return fluctuates over time. The source of return predictability is shown to vary considerably with information flow. In general, predictability of the Russian stock market return is at a high level. Autocorrelation increases during periods of low information flow. During periods of high information, conditional exposure to the local market risk and changes in oil price influence the expected return on the Russian stock market. The lagged global stock market factor and currency returns have insignificant influence.     

Intraday price discovery and volatility transmission in stock index and stock index futures markets: Evidence from China

Using high‐frequency data, this study investigates intraday price discovery and volatility transmission between the Chinese stock index and the newly established stock index futures markets in China. Although the Chinese stock index started a sharp decline immediately after the stock index futures were introduced, the cash market is found to play a more dominant role in the price discovery process. The new stock index futures market does not function well in its price discovery performance at its infancy stage, apparently due to high barriers to entry into this emerging futures market. Based on a newly proposed theoretically consistent asymmetric GARCH model, the results uncover strong bidirectional dependence in the intraday volatility of both markets. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

系统性金融风险的度量及其时变经济效应研究

基于TVP-SV-SVAR模型，分析六个不同金融子市场风险对实体经济的实时冲击效应，结合时变脉冲响应方法构建了动态权重系统性金融风险综合指数，并区分高低风险状态探讨其对实体经济的影响。结果表明，银行部门、股票市场和外部金融市场对系统性金融风险的贡献较大；基于对实体经济冲击视角的动态权重系统性金融风险综合指数与样本期内实际金融经济事件的发展趋势一致；不同状态下系统性金融风险对经济增长的冲击效应不同：短期来看，高风险点系统性金融风险抑制经济增长，低风险点系统性金融风险促进经济增长；长期来看，系统性金融风险在高低状态下对经济增长均有负向冲击效应。研究结论对于防范和化解系统性金融风险的宏观审慎政策制定具有重要的参考意义。     

Volatility Spillovers and the Risk-Return Relation Between Stock and Foreign Exchange Markets in Brazil

We examine the evidence of mean and volatility spillovers between stock and foreign exchange markets in Brazil with multivariate GARCH models and nonlinear Granger causality tests. We also use a multivariate GARCH-in-mean model to assess the relationship between risk and return in these markets. The results indicate that the stock market leads the foreign exchange market in price formation and that nonlinear Granger causalities from the exchange market to the stock market do occur. Part of these nonlinear causalities are explained by volatility spillovers. We show that exchange rate volatility affects not only stock market volatility but also stock returns.     

Currency risk in emerging equity markets

The paper develops an international capital asset-pricing model (ICAPM), which includes foreign currency risk, and examines the impact of capital market liberalisation on the pricing of risks. It applies the model to data from Pacific Basin financial markets and finds substantial evidence that not only currency risk is priced in both pre- and post-liberalisation periods, but the model is superior to one which does not include currency risk. This evidence suggests that an international capital asset-pricing model, which omits currency risk, will be misspecified. Furthermore, the results imply that since currency risk is priced and investors are compensated for bearing such risk they should not be discouraged by more flexible exchange rate regimes from investing in emerging markets.     

Insider trading laws and price informativeness in emerging stock markets: The South African case

We test the view that insider trading deters informativeness and, thereby, provide empirical evidence on the ramifications of insider trading legislation, particularly in an emerging market, that has hitherto received no research attention. Using the difference-in-differences identification strategy, we find that “effective insider trading law” improves stock price informativeness, a reflection of market efficiency, and that this efficiency is robust to both economic factors that affect market efficiency and the choice of control. Importantly, our results support the hypothesis that prohibition of insider trading elicits efficiency enhancement, particularly in emerging markets which are often characterized by weaker requisite institutional infrastructure than developed markets.     

Regional financial integration in the GCC

We investigate the extent of regional financial integration in the member countries of the Gulf Cooperation Council. Interest rate data show that convergence exists and that interest rate differentials are relatively short-lived—especially relative to other unified currency area and comparable to those of the Euro Area post 1999. Equity data using cross-listed stocks confirm that stock markets are fairly integrated compared to other emerging market regions, although price equalization is hampered by market illiquidity. The limited volume data available suggests that intra-GCC capital flows are sizeable.     

Conditional pricing of currency risk in Africa's equity markets

In this paper, we sought to establish whether Africa's volatile currencies drive equity risk premia. We use the SDF framework to estimate various conditional specifications of the International Capital Asset Pricing Model through generalized method of moments technique. Our results show strong evidence of conditional, time-varying currency risk premia in equity returns. Currency risk is also perceived by international investors as important in informing the equities pricing kernel. Interestingly, we find evidence that international investors are concerned about Africa's small size equity markets and build the impact of anticipated low trading into their pricing calculus.     

Liquidity and stock returns in emerging equity markets

Using data for 27 emerging equity markets for the period January 1992 through December 1999, we document the behavior of liquidity in emerging markets. We find that stock returns in emerging countries are positively correlated with aggregate market liquidity as measured by turnover ratio, trading value and the turnover–volatility multiple. The results hold in both cross-sectional and time-series analyses, and are quite robust even after we control for world market beta, market capitalization and price-to-book ratio. The positive correlation between stock returns and market liquidity in a time-series analysis is consistent with the findings in developed markets. However, the positive correlation in a cross-sectional analysis appears to be at odds with market microstructure theory that has been empirically supported by studies on developed markets. Our findings regarding the cross-sectional relation between stock returns and liquidity is consistent with the view that emerging equity markets have a lower degree of integration with the global economy.