International Investors' Exposure to Risk in Emerging Markets

Posted: 7 Nov 1998

See all articles by Babak Eftekhari

Babak Eftekhari

Goldman Sachs International, London

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics


We examine the empirical differences in emerging market betas taken across four major currencies (US dollars, sterling, yen, and German marks) where the betas considered are either mean-variance or mean-lower partial moment betas. The mean-variance betas are found to be statistically similar to lower partial-moment betas in the majority of cases, which suggests they are robust to the nonnormality in the data. The difference between the two betas has become less significant in recent years as the emerging markets have become more stable. Furthermore, evidence is presented that betas obtained from both risk measures and calculated from returns denominated in different currencies have the same ordinal association. This shows the primacy of local risk over foreign exchange risk. We conclude that international investors can continue to use the mean-variance beta in assessing risk in emerging markets, although investors should not give it a conventional equilibrium interpretation.

JEL Classification: G12, G15

Suggested Citation

Eftekhari, Babak and Satchell, Stephen E., International Investors' Exposure to Risk in Emerging Markets. Journal of Financial Research. Available at SSRN:

Babak Eftekhari (Contact Author)

Goldman Sachs International, London ( email )

Peterborough Court
133 Fleet Street
London, EC4A 2BB
United Kingdom
+44-171-774 5852 (Phone)

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
44 (0)1223 335213 (Phone)
44 (0)1223 335475 (Fax)


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