Time-Varying Risk Premia in Large International Equity Markets

57 Pages Posted: 18 Jan 2018 Last revised: 25 Oct 2018

See all articles by Ines Chaieb

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Hugues Langlois

HEC Paris - Finance Department

O. Scaillet

University of Geneva GSEM and GFRI; Swiss Finance Institute; University of Geneva - Research Center for Statistics

Date Written: June 15, 2018

Abstract

We estimate and test factor models with time-varying loadings and risk premia for a large unbalanced panel of 62,320 individual stock returns in 46 countries. First, we check that the tested factor models achieve weak cross-sectional dependence crucial for inference on risk premia. Adding an excess country market factor to world or regional market and non-market factors captures the factor structure for both developed and emerging markets. Second, we do not reject asset pricing restrictions in up to 91% of countries. Third, we uncover significant heterogeneity in level and dynamics of factor risk premia between and within developed and emerging markets.

Keywords: approximate factor model, emerging markets, international asset pricing, large panel, market integration, time-varying risk premium

JEL Classification: C12, C13, C23, C51, C52 , G12, G15

Suggested Citation

Chaieb, Ines and Langlois, Hugues and Scaillet, Olivier, Time-Varying Risk Premia in Large International Equity Markets (June 15, 2018). Swiss Finance Institute Research Paper No. 18-04; HEC Paris Research Paper No. FIN-2018-1250. Available at SSRN: https://ssrn.com/abstract=3103752 or http://dx.doi.org/10.2139/ssrn.3103752

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Hugues Langlois

HEC Paris - Finance Department ( email )

France

Olivier Scaillet

University of Geneva GSEM and GFRI ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+ 41 22 379 88 16 (Phone)
+41 22 389 81 04 (Fax)

HOME PAGE: http://www.scaillet.ch

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Geneva - Research Center for Statistics

Geneva
Switzerland

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