Currency Risk in Emerging Equity Markets

41 Pages Posted: 29 Sep 2004

See all articles by Kate Phylaktis

Kate Phylaktis

City University London - Sir John Cass Business School

Multiple version iconThere are 2 versions of this paper

Abstract

The paper develops an international capital asset pricing model, which includes foreign currency risk, and examines the impact of capital market liberalisation on the pricing of risks. It applies the model to data from Pacific Basin financial markets and finds substantial evidence that not only currency risk is priced in both pre and post liberalisation periods, but the model is superior to one which does not include currency risk. This evidence suggests that an international capital asset pricing model, which omits currency risk, will be misspecified. Furthermore, the results imply that since currency risk is priced and investors are compensated for bearing such risk they should not be discouraged by more flexible exchange rate regimes from investing in emerging markets.

Keywords: International capital asset pricing models, ICAPM, currency risk, capital market integration, emerging markets, Pacific Basin capital markets

Suggested Citation

Phylaktis, Kate, Currency Risk in Emerging Equity Markets. Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=563861 or http://dx.doi.org/10.2139/ssrn.563861

Kate Phylaktis (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

Register to save articles to
your library

Register

Paper statistics

Downloads
202
Abstract Views
883
rank
36,581
PlumX Metrics