Time-Varying Risk Preferences and Emerging Market Co-Movements

Posted: 2 Mar 2003

See all articles by Timothy K. Chue

Timothy K. Chue

Hong Kong Polytechnic University

Abstract

This paper examines how shocks can transmit across markets through the channel of time-varying investor risk preferences. We highlight the effects of this channel by comparing the conventional CRRA utility function with the habit-formation utility function of Campbell and Cochrane (1999). Calibrating our model to data from Argentina, Korea and Mexico, we find that in the presence of time-varying investor risk preferences, market integration generates a substantial increase in cross-country co-movements of stock returns.

Keywords: Time-varying risk preferences, habit-formation, emerging market stock returns, correlations and co-movements, financial market integration

JEL Classification: G15, G12, F30

Suggested Citation

Chue, Timothy K., Time-Varying Risk Preferences and Emerging Market Co-Movements. Available at SSRN: https://ssrn.com/abstract=378460

Timothy K. Chue (Contact Author)

Hong Kong Polytechnic University ( email )

School of Accounting & Finance
Hung Hom
Kowloon
Hong Kong
(852) 2766-4995 (Phone)

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