The Volatility Effect in Emerging Markets

Blitz, David; Pang, Juan; van Vliet, Pim

doi:10.2139/ssrn.2050863

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The Volatility Effect in Emerging Markets

31 Pages Posted: 6 May 2012 Last revised: 18 Dec 2012

See all articles by David Blitz

Pim van Vliet

Robeco Quantitative Investments

There are 2 versions of this paper

Date Written: April 10, 2012

Abstract

We examine the empirical relation between risk and return in emerging equity markets and find that this relation is flat, or even negative. This is inconsistent with theoretical models such as the CAPM, which predict a positive relation, but consistent with the results of studies for developed equity markets. The volatility effect appears to be growing stronger over time, which we argue might be related to the increased delegated portfolio management in emerging markets. Finally, we find that the volatility effect in emerging markets is only weakly related to that in developed equity markets, which argues against a common-factor explanation.

Keywords: volatility effect, asset pricing, emerging markets, CAPM, alpha, low-volatility

JEL Classification: F20, G11, G12, G14, G15

Suggested Citation: Suggested Citation

Blitz, David and Pang, Juan and van Vliet, Pim, The Volatility Effect in Emerging Markets (April 10, 2012). Available at SSRN: https://ssrn.com/abstract=2050863 or http://dx.doi.org/10.2139/ssrn.2050863