RISK ATTRIBUTION ANALYSIS FOR SOUTH EAST ASIAN MARKETS

Abstract

This paper is concentrated on those factors which have significant influence over stock returns on five South East Asia markets. Quantifying these factors and accounting for their influence leads to the specific stock return which we call “pure return”. This process is called return decomposition or risk attribution and it shows the sources of return/risk to the assets. This information can be very valuable in portfolio construction because it makes managing expositions more precise and flexible. Better understanding which factors drive stock prices allows asset managers to adjust their investment strategies accordingly and apply more successful risk management. We find that nine macroeconomic factors are significant for the studied markets. Also we quantify the specific risk exposure of the companies of the studied markets.

Keywords: Risk attribution, Return decomposition, Multifactor model, South East Asia, Emerging markets, Stock Risk Exposure

JEL Classification: G11, G32, C21