Determinants of time-varying equity risk premia in an emerging market
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 30 September 2022
Issue publication date: 31 May 2024
Abstract
Purpose
This study aims to document the time varying risk premia for market, size, value and momentum factors for an emerging market using a sophisticated conditional asset pricing model. The focus of this study is Turkish stock market denominated in local currency with its peculiar risk premia.
Design/methodology/approach
The authors employ Gagliardini et al.'s (2016) econometric method that uses cross-sectional and time series information simultaneously to infer the path of risk premia from individual stocks.
Findings
Using this methodology, the authors assess several conditioning information and conclude that local dividend yield, inflation and exchange rates have the most explanatory power. The authors document the time varying risk premia in Turkey over three decades.
Originality/value
Existing studies on dynamic estimation of risk premia lack a consensus as to which state variables should be included and to what extent they impact the magnitude of the premium. The authors extend the conditioning information set beyond the ones existing in the literature to determine variables that are specifically important for an emerging market.
Keywords
Acknowledgements
This study is supported by Bogazici University Research Fund Grant Number 14822.
Citation
Candemir, I. and Karahan, C.C. (2024), "Determinants of time-varying equity risk premia in an emerging market", International Journal of Emerging Markets, Vol. 19 No. 6, pp. 1492-1520. https://doi.org/10.1108/IJOEM-01-2022-0168
Publisher
:Emerald Publishing Limited
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