Global and Local Sources of Risk in Eastern European Emerging Stock Markets

32 Pages Posted: 10 Jan 2009

See all articles by Mika Vaihekoski

Mika Vaihekoski

University of Turku, Turku School of Economics; University of Turku - Turku School of Economics

Elena Fedorova

Lappeenranta University of Technology, School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 29, 2008

Abstract

We study a pricing model for global and local sources of risk in six Eastern European emerging stock markets. Utilizing GMM estimation and an unconditional asset-pricing framework with and without time-varying betas, we perform estimations based on monthly data from 1996 to 2007 for Poland, Czech Republic, Hungary, Bulgaria, Slovenia and Russia. Most of these markets display considerable segmentation; the aggregate emerging market risk, as opposed to global market risk, is the significant driver for their stock market returns. It also appears that currency risk is priced into stock prices. The difference between local and global interest rates can be used to model the time-variation in the betas for both sources of risk.

Keywords: market integration, segmentation, asset pricing, emerging markets, Eastern Europe country risk

JEL Classification: G12, G15, G32

Suggested Citation

Vaihekoski, Mika and Vaihekoski, Mika and Fedorova, Elena, Global and Local Sources of Risk in Eastern European Emerging Stock Markets (December 29, 2008). BOFIT Discussion Paper No. 27/2008, Available at SSRN: https://ssrn.com/abstract=1324568 or http://dx.doi.org/10.2139/ssrn.1324568

Mika Vaihekoski (Contact Author)

University of Turku, Turku School of Economics ( email )

Turku School of Economics
Dep. of Accounting and Finance
University of Turku, 20014
Finland
+358 2 33351 (Phone)

HOME PAGE: http://users.utu.fi/moovai/

University of Turku - Turku School of Economics ( email )

Turku, 20014
Finland

HOME PAGE: http://users.utu.fi/moovai/

Elena Fedorova

Lappeenranta University of Technology, School of Business ( email )

P.O. Box 20
Lappeenranta, 53851
Finland
+358503226538 (Phone)
+358294463246 (Fax)

HOME PAGE: http://www.lut.fi/

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