Do Consumption Habit and Income Difference Eliminate the Risk Premium in Chinese Capital Market?

Has the eurozone (EZ) really gained from integration? This study applied two econometric frameworks, mGARCH and gMMPI, to test this hypothesis, using panel data that span 1996–2014, a total of 19 years, involving the EZ, EU, G8, G20 and some emerging economies. The empirical outcomes initially showed that the EZ economies experienced neither superior output growth nor a better capital market return than non-EZ economies or the pre-EZ period. They further suggested that each EZ country had a higher degree of risk bearing and, as a group, a greater risk linkage. Moreover, the results indicated that the EZ had a higher productivity gain if the risk premium was counted as part of productivity. Nonetheless, the EZ did not show a substantial productivity gain when the effect of the risk factor was controlled. The ratio of risk bearing to risk premium gain was shown to be 1 to 0.97. The general conclusion is that, other than the risk premium, there was no extra productivity gain for the EZ from taking the risk.

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RATE OF COSTS ON INVESTMENT CAPITAL IN EMERGING MARKETS

SOCIETY INTEGRATION EDUCATION Proceedings of the International Scientific Conference ◽

10.17770/sie2019vol6.3957 ◽

2019 ◽

Vol 6 ◽

pp. 665 ◽

Cited By ~ 4

Author(s):

Oleg Tereshenko ◽

Nataliya Voloshanyk ◽

Dmytro Savchuk

Keyword(s):

Emerging Markets ◽

Discount Rate ◽

Capital Market ◽

Risk Premium ◽

Emerging Market ◽

Weighted Average ◽

Capital Costs ◽

Investment Capital ◽

Capm Model ◽

Risk Free Rate

To date, there is no adequate methodology for calculating the discount rate that would satisfy most financial analysts. The most common approach to determining the discount rate is to use the weighted average cost of capital (WACC) algorithm. The calculation of capital costs (discount rates) in emerging market countries (EM) is characterized by a number of problems related to the information inefficiency of the capital market, instability of demand for products, inflation, macroeconomic and legal uncertainty and a lack of proper payment discipline. Even more complex are the corresponding calculations during the financial crisis, accompanied by hyperinflation, a fall or significant fluctuations in the rate of the national monetary unit, trade wars, and the collapse of the banking system.Especially problematic for emerging markets is the calculation of the cost of equity (investment) capital. In developed markets, the classical CAPM model is used for these purposes. Taking into account the lack of an effective capital market in EM-related countries, it is quite difficult to determine the standard parameters of the model (risk-free rate of return, market risk premium, beta factor). Significant problems also lie in the sources and shadow schemes for paying high premiums for the risks of investing capital in EM. The aim of the paper is to substantiate recommendations on the procedure for calculating the rate of costs for own (investment) capital, taking into account the specifics of corporate activities in countries related to EM.

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MARKET SEGMENTATION AND NOISE TRADER RISK

International Journal of Theoretical and Applied Finance ◽

10.1142/s021902490000005x ◽

2000 ◽

Vol 03 (01) ◽

pp. 85-100 ◽

Cited By ~ 4

Author(s):

VIHANG ERRUNZA ◽

KED HOGAN ◽

MAO-WEI HUNG

Keyword(s):

Market Segmentation ◽

Capital Market ◽

Risk Premium ◽

International Investment ◽

International Capital ◽

Fully Integrated ◽

Asset Pricing Model ◽

Noise Trader ◽

Cross Border ◽

Investment Barriers

A simple asset pricing model is developed to take into account two important characteristics in global investments: market segmentation and noise trader risk. Our results show the removal of international investment barriers and cross-border listings have not led to a fully integrated international capital market. We also show that different degree of investor rationality across borders induces an additional component of risk premium which is related to the "noise spill-over effect".

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Methodology of calculating risk premiums in the environment of the Czech Republic and its comparison with Damodaran

SHS Web of Conferences ◽

10.1051/shsconf/20219101045 ◽

2021 ◽

Vol 91 ◽

pp. 01045

Author(s):

Jiri Kucera ◽

Lenka Maskova

Keyword(s):

Czech Republic ◽

Capital Market ◽

Risk Premium ◽

Country Risk ◽

Foreign Investors ◽

The Czech Republic ◽

Risk Premiums ◽

Us States ◽

The Us ◽

The Usa

Investors' decisions are largely influenced by the riskiness of the country. Several different approaches are available to calculate this risk, but even so, the values set by Damodaran are usually used, even for non-US states. The aim of the paper is to propose a methodology for creating a risk premium in the environment of the Czech Republic and then compare it with Damodaran [1]. Methods applicable in the Czech Republic and Damodaran methods are used, then these methods are compared. For Czech as well as foreign investors, the easiest way to obtain a risk premium is to use the company’s investment rating. In the case of determining the risk premium of the Czech Republic, the easiest method is the CRP (country risk premiums) model. If the country’s market does not have a long history or does not have such a developed capital market, it is recommended to apply data from the US capital market. However, there are significant differences in the economy between Europe and the USA, so the data of an European country such as Germany, which has historical risk premium calculations, should be used.

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Capital asset pricing in the classical and downside approaches to risk

Wiadomości Statystyczne. The Polish Statistician ◽

10.5604/01.3001.0013.7582 ◽

2019 ◽

Vol 64 (11) ◽

pp. 58-75

Author(s):

Lesław Markowski

Keyword(s):

Asset Pricing ◽

Capital Market ◽

Risk Premium ◽

Stock Exchange ◽

Risk Measures ◽

Capital Asset Pricing ◽

Capital Investments ◽

Capital Asset ◽

Market Growth ◽

Warsaw Stock Exchange

The purpose of the paper is to verify the functioning of the Capital Asset Pricing Model (CAPM) on the Polish capital market both in the classical and downside approaches to risk. The subject of the study are time series of returns of 14 sectoral sub-indices listed on the Warsaw Stock Exchange in 2011–2018. The use of risk measures in the conventional and downside approaches constitutesan important contribution to the studies on the risk of capital investments. The presented research method, which involves conditional regressions determined by the market situation, was adopted as a response to ambiguous results of unconditional CAPM relations in the previous research on capital markets.The results of the performed analyses indicate that the significance of risk assessment (risk premium) depends on the sign of the market excess returnto the largest extent. They also evidence the supremacy of conditional relations over the unconditional ones. The ana-lysis of unconditional relations has moreover demonstrated that downside risk factors, unlikethe majority of classical measures, influence the process of shaping the returns of sub-indicessignificantly. In the Polish capital market, it is only co-kurtosis, among other co-moments, which is subject to significant pricing during periods of market growth.

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Kurtosis and Skewness on Lagged Market Risk Premium in Indonesian Market During Covid 19 Pandemic

Jurnal Mandiri ◽

10.33753/mandiri.v5i1.168 ◽

2021 ◽

Vol 5 (1) ◽

Author(s):

Iman Lubis

Keyword(s):

Panel Data ◽

Capital Market ◽

Risk Premium ◽

Market Risk ◽

Previous Model ◽

Return Distribution ◽

Market Risk Premium ◽

Predictive Regression ◽

The Impact ◽

Skewness And Kurtosis

This study investigates the impact of return distribution such as skewness and kurtosis on lagged market risk premium to risk premium in Indonesia capital market during COVID-19 pandemic. Data are monthly, from january to December 2020, and 674 firms. Panel data predictive regression is used The method For this study, I first looked for market risk premium and risk premium desripitives. Second, I used monthly panel data predictive regression from lagged market risk premium and risk premium in 2020. Third, I incorporate skewness and kurtosis simultaneously. Fourth, I exclude kurtosis or skewness in previous model. The results are market risk premium and risk premium having negative return. Risk premium has lower returns than market risk premium. The beta lagged market risk premium is significant to risk premium. The skewness and kurtosis market risk premium do not signify to risk premium together but significant separately. I can clonclude that the movement market risk premim and risk premium during COVID-19 pandemic are average negative. Beta lagged market risk premium can explain the future monthly risk premium. Contrary skewness and kurtosis, those can not be run together. When the model used to beta lagged market risk premium and skewness, partially the skewness was significant and the direction was positive. However, only beta lagged market risk premium and kurtosis were staying negative to the previous model. Incorporating lagged assumptive distribution only explain the risk premium under 1 % about 0.24%.

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Equity Risk Premium in India: Comparative Estimates from Historical Returns, Dividend and Earnings Models

Journal of Emerging Market Finance ◽

10.1177/0972652717751543 ◽

2018 ◽

Vol 17 (1_suppl) ◽

pp. S136-S156

Author(s):

Manju Tripathi ◽

Smita Kashiramka ◽

P. K. Jain

Keyword(s):

Capital Market ◽

Risk Premium ◽

Growth Models ◽

Equity Risk Premium ◽

Market Returns ◽

Earnings Growth ◽

Equity Risk ◽

The Impact ◽

Historical Model ◽

Blue Chip

The article compares efficiencies of dividend and earnings growth models with historical model in predicting the unconditional expected equity risk premium (ERP) in addition to analysing the impact of recession. The exercise is undertaken employing two different Indian capital market indices, NIFTY500 and SENSEX. The study period is 20 years (1997–2016) with pre- and post-recession periods as 2001–2008 and 2009–2016, respectively. The dividend growth model emerges as the most efficient model for predicting ERP while highlighting that Indian firms follow stable dividend policy. NIFTY500 index with a wider base proves to be a superior benchmark for market returns over SENSEX comprising 30 blue-chip firms.

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Probabilitas Tingkat Laba Bursa Efek Indonesia Periode 1 Juli 1997 – 1 Juli 2011

Binus Business Review ◽

10.21512/bbr.v2i2.1228 ◽

2011 ◽

Vol 2 (2) ◽

pp. 833

Author(s):

Tomy G. Soemapradja

Keyword(s):

Probability Distribution ◽

Capital Market ◽

Risk Premium ◽

Stock Exchange ◽

Cumulative Probability ◽

Expected Return ◽

Market Risk Premium ◽

Time Deposits ◽

Public Data ◽

Risk Averter

Capital market investor should considers whether the higher expected return, the more risk should be taken, to minimize speculative decision. The research objectives are measuring and describes the probability distribution of market return of IHSG, in July 1, 1997- July 1, 2011, according to availability of public data provided by Indonesian Stock Exchange (IDX). Classification were made with several considered assumptions, results that the largest probability movements of Indonesian Stock Exchange, represented by IHSG percentage of change, is relatively stable of 89,1%, the cumulative probability of downtrend and market crash is 6.3%, whether the cumulative probability of uptrend and booming is 4,6%. This research results the expected return based on probability distribution is 0.049% per day. Assumed 12% pa of time deposits interest rate or 0.033% per day, it means the market risk premium only 0.17% per day or 6% pa. The Capital market is suitable for risk seeker rather than risk averter or risk normal. But risk averter and risk normal may use other alternative instrument such mutual funds when they want to invest their money into capital market.

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An Addendum and a Short Comment on the Paper

Astin Bulletin ◽

10.2143/ast.29.1.504609 ◽

1999 ◽

Vol 29 (1) ◽

pp. 165-171 ◽

Cited By ~ 1

Author(s):

Alois Gisler ◽

Patrick Frost

Keyword(s):

Capital Market ◽

Risk Premium ◽

Low Frequency ◽

Convertible Bond ◽

Storm Event ◽

Knock Out ◽

Scientific Discussion ◽

Financial Products ◽

Conservative Estimation ◽

Short Comment

In January 1997, Winterthur Insurance, together with Credit Suisse First Boston (CSFB), issued the first listed CAT bond. The annual “WINCAT0 coupons of this three-year convertible bond are knocked out if any single storm event damages more than 6,000 vehicles insured by Winterthur Insurance in Switzerland.This was a completely new way of securing insurance risks. The main intention was to test the Swiss capital market for such products and to make investors acquainted with them. Thereby Winterthur, together with CSFB, set new standards in product transparency, fairness of pricing and investor education by making the historical data available via internet and by publishing a special brochure (CSFB (1997)), where the pricing and the mathematical modelling are described in detail. This is also a prerequisite to enable a scientific discussion on pricing aspects of such new financial products. The developers of the bond are therefore grateful to Mr. Schmock for this valuable scientific contribution which can be seen as a thorough and profound statistical analysis on the knock-out probability for the purpose of quantifying the model uncertainty.In Section 2 we briefly summarize the whole pricing of the bond at the issue date and show that there were several risk premium elements in this pricing where the conservative estimation of the knock-out probability was just one of them. In Section 3 we consider the modelling of low frequency risks from a practitioner's standpoint and formulate some requirements from practice. In Section 4 we make some further comments on the modelling of the Wincat data. Section 5 is a short summary.

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Market and Accounting Risk Factors of Asset Pricing in the Classical and Downside Approaches

Annales Universitatis Mariae Curie-Skłodowska sectio H Oeconomia ◽

10.17951/h.2020.54.2.103-112 ◽

2020 ◽

Vol 54 (2) ◽

pp. 103

Author(s):

Anna Rutkowska-Ziarko ◽

Lesław Markowski

Keyword(s):

Risk Factors ◽

Asset Pricing ◽

Capital Market ◽

Risk Premium ◽

Average Rate ◽

Explanatory Power ◽

Significant Risk ◽

Downside Risk ◽

Cross Sectional ◽

Profitability Ratios

Theoretical background: The variability of the company’s profitability is the result of the accompanying risk. To compare the profitability of many companies, relative profitability measures, which include profitability ratios, are more convenient. This article analyses market and accounting risk factors of CAPM. Risk was considered in variance and downside framework. Market betas, accounting betas were used in an extended version of the asset pricing model. Additionally, the influence of profitability ratios, such as ROA and ROE on the average rate of return on the capital market are considered.Purpose of the article: The main purpose of this study is to test the standard and extended CAPM relations between systematic risk measures and mean returns for single companies quoted on the Polish capital market and equally-weighted portfolios in two approaches: variance and downside risk.Research methods: The research based on individual securities and portfolios, compares the one-factor risk-return relationships with two-factor ones estimated using mean returns in cross-sectional regressions. The regressors were expressed in absolute terms and classical and downside beta coefficients. The sample includes companies differing in terms of size and across different industries.Main findings: Portfolios with higher classical or downside market betas generate higher mean returns. The negative risk premium for accounting betas for variance and downside risk was identified. It is not in accordance with our earlier study of the Polish construction sector, where a positive and significant risk premium for downside accounting betas was found. The highest explanatory power of rates on returns on the Polish capital market were found for average ROA and ROE. This confirms the results of the previous studies on the Polish capital market for food and construction sectors.

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