The Relative Importance of Global, Country and Sector Risks

ADVANCES IN FINANCIAL PLANNING AND FORECASTING, VOL. 3, Cheng Lee, ed., Airiti Press, 2006

38 Pages Posted: 19 Dec 2009

See all articles by Eric Girard

Eric Girard

Siena College - School of Business

Eurico J. Ferreira

Indiana State University

Amit Sinha

Bradley University - Department of Finance

Date Written: 2006

Abstract

We construct a state-dependent trivariate GARCH-M model to extract state-dependent risk-aversion coefficients around the 1997-1999 financial meltdown. These coefficients are further used to decompose sector risk into global (systematic), country-specific (diversifiable through global country allocation) and sector-specific (diversifiable through domestic sector allocation) risk measures. Our investigation shows that diversification benefits of sector-based allocation have increased as a result of the Asian meltdown. Nevertheless, the importance of country factors persists. Finally, we find that sector-specific effects are as important as country effects and increase slightly over the period of study.

Keywords: GARCH-M, Risk Decomposition, Asian Meltdown

JEL Classification: G10, G14, G15, F21

Suggested Citation

Girard, Eric and Ferreira, Eurico J. and Sinha, Amit, The Relative Importance of Global, Country and Sector Risks (2006). ADVANCES IN FINANCIAL PLANNING AND FORECASTING, VOL. 3, Cheng Lee, ed., Airiti Press, 2006, Available at SSRN: https://ssrn.com/abstract=1525492

Eric Girard (Contact Author)

Siena College - School of Business ( email )

Siena Hall 301
515 Loudon Road
Loudonville, NY 12211-1462
United States

Eurico J. Ferreira

Indiana State University ( email )

Terre Haute, IN 47809
United States

Amit Sinha

Bradley University - Department of Finance ( email )

1501 West Bradley Avenue
Peoria, IL 61625
United States
3096773582 (Phone)

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