Determinants of Country Beta Risk in Poland
28 Pages Posted: 17 Aug 2004
Date Written: January 2004
In the paper we analyze determinants of the capital market beta risk in Poland on a monthly basis over the 1996-2002 period. The beta risk is measured as a time-varying parameter estimated in a regression of the Warsaw stock indexes (WIG and WIG20 separately) on major foreign stock market indexes (DJIA, NASDAQ, DAX and FTSE). The individual monthly beta parameters time series are computed as structural regression parameters estimated for daily data in monthly sub-periods in regressions for WIG and WIG20 indexes on individual foreign stock market indexes. The beta risk is an average of monthly individual beta parameters. We put forward a hypothesis that the estimated beta risk depends on monetary and real variables expressing the economic performance of the Polish economy. Hence, we build monetary and real factors models. As explanatory variables of risk, we examine: income, productivity, trade balance, budget deficit, interest rate and the zloty exchange rate. The risk factors are expressed as differentials relative to the world economy, for which the U.S. economy stands. According to Fair and Shiller (1990), we test for relative one-period-ahead predictive performance of monetary and real factors models of capital market risk in Poland in the period 1999-2002. We find that such monetary variables as exchange rate and interest rate have relatively more power than real variables in explaining the beta market risk in Poland.
Keywords: country beta risk, capital market, risk modelling, econometric model, forecasting, Poland
JEL Classification: C2, C5, E6, F3, G1
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