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

Czech Journal of Economics and Finance, Vol. 59, No. 1, pp. 2-19, 2009

Posted: 25 Sep 2009

See all articles by Elena Fedorova

Elena Fedorova

Lappeenranta University of Technology, School of Business

Mika Vaihekoski

University of Turku - Turku School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2009

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, the 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: F36, G12, G15

Suggested Citation

Fedorova, Elena and Vaihekoski, Mika, Global and Local Sources of Risk in Eastern European Emerging Stock Markets (September 24, 2009). Czech Journal of Economics and Finance, Vol. 59, No. 1, pp. 2-19, 2009, Available at SSRN: https://ssrn.com/abstract=1477952

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/

Mika Vaihekoski (Contact Author)

University of Turku - Turku School of Economics ( email )

Turku, 20014
Finland

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

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