Country and Currency Risk Premia in an Emerging Market

JOURNAL OF FINANCIAL AND QUANITATIVE ANALYSIS, June 1998

Posted: 15 Jun 1998

See all articles by Ian Domowitz

Ian Domowitz

ITG, Inc.; National Bureau of Economic Research (NBER)

Jack D. Glen

International Finance Corporation (IFC)

Ananth Madhavan

BlackRock, Inc.

Abstract

The magnitude and determinants of credit and currency risks are topics of considerable importance. This paper uses data on peso- and dollar-denominated debt issued by the Mexican government to identify currency and country risk premia. We show that shoc ks in equity and debt market returns translate into long-term increases in the premium demanded by investors with respect to currency and country factors. Country and currency premia help explain equity returns and closed-end fund discounts. Additional evidence is provided showing that investors did not anticipate the magnitude or timing of the currency devaluation of December 1994 and the subsequent financial crisis.

JEL Classification: F31, G12, G15

Suggested Citation

Domowitz, Ian H. and Glen, Jack Dean and Madhavan, Ananth, Country and Currency Risk Premia in an Emerging Market. JOURNAL OF FINANCIAL AND QUANITATIVE ANALYSIS, June 1998 . Available at SSRN: https://ssrn.com/abstract=95230

Ian H. Domowitz (Contact Author)

ITG, Inc. ( email )

380 Madison Avenue, 4th Floor
Electronic Market Initiatives
New York, NY 10017
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jack Dean Glen

International Finance Corporation (IFC) ( email )

2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States
202-473-8641 (Phone)

Ananth Madhavan

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

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