CROSS-SECTIONAL RETURNS FROM DIVERSE PORTFOLIO OF EQUITY INDICES WITH RISK PREMIA EMBEDDED Cover Image

CROSS-SECTIONAL RETURNS FROM DIVERSE PORTFOLIO OF EQUITY INDICES WITH RISK PREMIA EMBEDDED
CROSS-SECTIONAL RETURNS FROM DIVERSE PORTFOLIO OF EQUITY INDICES WITH RISK PREMIA EMBEDDED

Author(s): Paweł Sakowski, Robert Ślepaczuk, Mateusz Wywiał
Subject(s): Economy, Methodology and research technology
Published by: Szkoła Główna Gospodarstwa Wiejskiego w Warszawie
Keywords: cross-sectional models; asset pricing models; equity risk premium; equity indices; new risk factors; sensitivity analysis; book to market; momentum; market price of risk;

Summary/Abstract: The main purpose of this article is to extend evaluation of classic Fama-French and Carhart model for global equity indices. We intend to check the robustness of models results when used for a wide set of equity indices instead of single stocks for the given country. Such modification enables us to estimate equity risk premium for a single country. However, it requires several amendments to the proposed methodology for single stocks. Our empirical evidence reveals important differences between the conventional models estimated on single stocks, either international or US- only, and models incorporating whole markets. Our novel approach shows that the divergence between indices of the developed countries and those of emerging markets is still persistent. Additionally, research on weekly data for equity indices presents rationale for explanation of equity risk premia differences between variously sorted portfolios.

  • Issue Year: XVI/2015
  • Issue No: 2
  • Page Range: 89-101
  • Page Count: 13
  • Language: English
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