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


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
Hong Kong
(852) 2766-4995 (Phone)

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