Panel data approach to identify factors correlated with equity market risk premiums in developed and emerging markets

M. Ariff*, Vijaya B. Marisetty

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

Traditional time series or cross-sectional regression procedures yield mixed evidence on maintained hypotheses about the determinants of international equity returns. This paper re-examines how three theory-suggested factors affect equity returns and how the test results may differ between developed and the Asian emerging markets. However, on pooling observations, our estimated coefficients are much more accurate, and yield theory-consistent results. Using the panel data method, we find that the equity returns, specified as risk premiums of developed and emerging markets, appear to be determined by variations within the equity markets using all three theory-suggested factors. In the emerging Asian markets, the risk premiums are affected more by the variation over time in income growth while the variations in the other two factors affect the equity premiums as within market variation effects.

Original languageEnglish
Pages (from-to)107-118
Number of pages12
JournalQuantitative Finance
Volume12
Issue number1
DOIs
Publication statusPublished - Jan 2012

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