Equity Risk Factors for a Small Open Economy: A Risk Management Perspective

33 Pages Posted: 8 Jul 2015

See all articles by Hossein Asgharian

Hossein Asgharian

Lund University - Department of Economics; Knut Wicksell Centre for Financial Studies

Bjorn Hansson

Lund University - Department of Economics

Date Written: July 7, 2015

Abstract

This article seeks to find factors that can account for the determinants of common variations in returns for a small open economy where the Swedish stock market serves as an example. The importance of the candidate factors is first analyzed by looking at the standard deviation of their mimicking portfolio returns, while their performance is evaluated from a risk management viewpoint. The results of the volatility analysis verify that the market, as represented by both the world market portfolio and the Swedish home market portfolio, is a crucial factor and most of the macro factors seem to be redundant. The results of the risk management exercise show that the market factor and the portfolios mimicking size and book-to-market ratio are important.

Keywords: multifactor models; open economy; return covariance; risk management

JEL Classification: G310

Suggested Citation

Asgharian, Hossein and Hansson, Bjorn, Equity Risk Factors for a Small Open Economy: A Risk Management Perspective (July 7, 2015). Multinational Finance Journal, Vol. 5, No. 4, p. 225-257, 2001. Available at SSRN: https://ssrn.com/abstract=2627616

Hossein Asgharian (Contact Author)

Lund University - Department of Economics; Knut Wicksell Centre for Financial Studies ( email )

P.O. Box 7082
S-220 07 Lund
Sweden
046-222-86-87 (Phone)

Bjorn Hansson

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden
+46462228668 (Phone)
+46462224118 (Fax)

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