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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.

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.

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.

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.

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

In this paper, the authors aim to investigate the short‐run as well as long‐run market efficiency of Indian commodity futures markets using different asset pricing models. Four agricultural (soybean, corn, castor seed and guar seed) and seven non‐agricultural (gold, silver, aluminium, copper, zinc, crude oil and natural gas) commodities have been tested for market efficiency and unbiasedness.

The long‐run market efficiency and unbiasedness is tested using Johansen cointegration procedure while allowing for constant risk premium. Short‐run price dynamics is investigated with constant and time varying risk premium. Short‐run price dynamics with constant risk premium is modeled with ECM model and short‐run price dynamics with time varying risk premium is modeled using ECM‐GARCH in‐Mean framework.

As far as long‐run efficiency is concerned, the authors find that near month futures prices of most of the commodities are cointegrated with the spot prices. The cointegration relationship is not found for the next to near months futures contracts, where futures trading volume is low. The authors find support for the hypothesis that thinly traded contracts fail to forecast future spot prices and are inefficient. The unbiasedness hypothesis is rejected for most of the commodities. It is also found that for all commodities, some inefficiency exists in the short run. The authors do not find support of time varying risk premium in Indian commodity market context.

In context of Indian commodity futures markets, probably this is the first study which explores the short‐run market efficiency of futures markets in time varying risk premium framework. This paper also links trading activity of Indian commodity futures markets with market efficiency.

This paper aims to examine the risk premium for investors in a changing information environment in the Taiwan, New York and London real estate markets from March 2006 to November 2014. This study attempts to quantify behavioral expectations regarding (or motivation for) investment in the Taiwanese real estate in a changing information environment.

This paper uses the rolling generalised autoregressive conditionally heteroskedastic in mean (GARCH-M) methodology which fixes the problem of conventional GARCH-M methodology.

Empirical evidence suggests that the time-varying risk premium changed for the Taiwan real estate market with a new information set. The risk premium changed from 1.305 per cent per month to −7.232 per cent per month. The study also found persistent volatility shocks from March 2006 to November 2014. No such evidence was found for the New York and London real estate markets. Overall, this study finds evidence of a time-varying risk premium, partly explainable by governmental policies and partly unexplainable.

The use of the index of Standard and Poor’s Taiwan Real Estate Investment Trusts to study the Taiwan real estate industry may have aggregation effects in result.

The present study will provide guidance to investors as well as policymakers regarding the Taiwan real estate market.

This study uses the rolling GARCH-M model, which is a first for the Taiwan real estate market.

The National commodity exchanges were established in India in the year 2003-2004 to perform the functions of price discovery and price risk management in the economy. The derivatives market can perform these functions properly only if they are efficient and unbiased. So, there is a need to properly evaluate these aspects of the Indian commodity derivatives market. The purpose of this paper is to test the market efficiency and unbiasedness of the Indian soybean futures markets.

The paper uses cointegration and a QARCH-M-ECM-based framework to test the market efficiency and unbiasedness in the soybean futures contract traded in the National Commodity Derivatives Exchange (NCDEX). The cointegration test is used to test the long-run unbiasedness and market efficiency of the contract, while the QARCH-M-ECM model is used to test the short-run market efficiency and unbiasedness of the contract by allowing for a time-varying risk premium. The price data is also tested for presence of structural breaks using a Zivot and Andrews unit root test.

The soybean contract is unbiased in the long run, but there are short-run market inefficiencies and also a presence of a time-varying risk premium. Though the weak form of market efficiency is rejected in the short run, the semi-strong market efficiency is not rejected based on the forecasts.

This is the first paper to consider time-varying risk premium while performing the tests of market efficiency and unbiasedness on Indian commodity markets.

The purpose of this paper is to examine the volatility effects on the returns for six developed market indices factoring in the unprecedented event of September 11, 2001, hereafter referred to as 9/11, in the USA. It also looks at the correlations between the indices and the risk premium when uncertainty in the financial markets affects the investors psyche, eroding confidence as volatility increases.

The volatility of the indices in generalized autoregressive conditional heteroskedasticity (GARCH) framework, employing first the Box and Jenkins ARMA (p, q) to select models is investigated. The chosen models are based on the results obtained from Akaike information criterion and Schwartz Bayesian criterion. GARCH is a mechanism that includes past variances in the explanation of future variances.

The results highlight several findings, the variance of developed market returns appears to have increased after the 9/11 event; the correlation has increased among developed markets following 9/11; 9/11 affects developed markets, holding short‐term assets do not provide the investors with the reward they usually seek, but results are mixed in the case of holding long‐term assets; for all the period including sub‐period, signs of significant volatility clustering are found; but shocks are not explosive throughout.

The effect of 9/11 on the markets is different from previous worldwide crashes, such as that of October 19, 1987. This paper will be of value to policy makers and managers/institutional investors and those who have some stakes in international portfolio diversification, as the objective of diversification, is to avail the opportunity to improve portfolio performance on the low correlations across international stock markets.

The currency premium is one of the three components of the differential between local and foreign interest rates. Emerging economies such as South Africa typically face positive interest rate differentials, that is, a higher cost of capital than developed economies. In this chapter we aim at identifying the determinants of the South African rand–U.S. dollar currency premium using monthly data over the period 1997–2008. We carry out an empirical analysis using dynamic time series econometric techniques to estimate the determinants of the one-month and one-year currency premia. Our findings show that the currency premia at both horizons are driven by long-run movements in the expected inflation differential between South Africa and the United States, risk aversion as a proxy for the price of rand exchange risk, and the volatility of the rand exchange rate as an indicator of the quantity of that risk. Misalignments in the real effective or rand–U.S. dollar bilateral exchange rates display mixed results in terms of their impact and statistical significance on both currency premium. Our parameter estimators overall are stable and robust to sample variations. Monetary policy is an important determinant of currency premia at both one-month and one-year horizons, but risk aversion is equally important to determine its time fluctuations.

The purpose of this paper is to examine if the enactment of Sarbanes-Oxley (SOX) resulted in lower risk premium and return volatility in the US stock markets. The paper examines the two components of excess return (total risk premium) separately: the amount of volatility (risk) and the unit price of risk (risk premium).

The authors use a Component Generalized Autoregressive Conditional Heteroskedasticity approach to estimate the permanent and transitory component of share price volatility. The authors then use the predicted volatility to measure the unit price of risk and its changes due to the enactment of the SOX Act.

The results regarding excess returns indicate that the implementation of SOX had a positive effect on the market. A positive effect means a steady decrease in required excess rates of returns due to the implementation of SOX. The years leading up to the implementation of SOX are characterized by significant sources of uncertainty. Around the implementation of SOX, the authors observe a long-term reduction in return volatility (risk), and a temporary reduction in the unit price of risk. Subsequent to the implementation, investors gained confidence in the effectiveness of internal controls over the financial reporting process, which helped in reducing the information risk and, therefore, the risk premium.

The authors find that total risk premium decreased over extended periods. The authors conclude that the enactment of SOX helped in reducing the uncertainty in the US capital market resulting in a reduction of total risk premiums and hence the cost of capital.

The results have implications for policy makers, investors and researchers in general and those in the US markets in particular. The results are important because it allows policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms.

The study shows how financial markets react to regulations and the authors also provide information on investors’ reaction as firms adjust to changing regulations. The results of the study allows regulators to potentially use a more refined or targeted approach when introducing new regulations. It also allows investors to make informed investment decisions as they relate to risk premium requirements, which in turn may allow investors to allocate capital more efficiently.

There are many studies concerning the enactment of SOX but few, if any, existing studies examine the original intent of SOX: to calm the US equity markets and restore market confidence from a return volatility perspective. The results have implications for policy makers, investors and researchers in general and those in the US markets in particular. The results are important because it allows policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms.

This paper studies the components of the forward discount dynamics in Germany from 1972 to 1996. By using two different frequencies in the analysis, we find that an ARCH structure fits the monthly data well, while an EGARCH structure gives a better description of daily forward discount volatility. Results also suggest that foreign central bank reserves and portfolio investment are significant in the determination of the forward discount trend over the whole period. The causality, however, varies over time. Sign size, and persistence effects on the volatility of the forward discount are all significant, and thus, provide important information to both policy makers and operators in the market. There is also evidence that the volatility of the forward discount dropped after the Plaza Accord.

This paper seeks to analyze stylized statistical properties of the recent traded asset CO₂ emission allowances, for spot and futures returns, examining also the relation linking convenience yield and risk premium, for the German European Energy Exchange (EEX) between October 2005 and October 2009.

The study was conducted through empirical estimations of CO₂ allowances risk premium, convenience yield, and their relationships.

Future prices from an ex-post perspective are examined to show evidence for significant negative risk premium, or a positive forward premium. A positive relationship between risk premium and time-to-maturity is found. Both financial concepts are found to be negatively affected by spot price volatility. Convenience yield is positively influenced by CO₂ price, while influencing the risk premium positively.

From a financial perspective, allowances seem to be producing the desired effects in terms of environmental policies, although a lot more remains to be done. The presence of risk premium and convenience yield makes it clear that agents act in this commodity market according to risk consideration. Results change depending on phase and futures contracts used for the determination of both financial terms, indicating that uncertainties over the future of EU-ETS seem to be decreasing.

Previous research has mainly focused on the first phase of the EU-ETS (2005-2007), whereas this paper extends the analysis period here. The paper finds some opposite results compared with previous commodities theories and designs some policy implications, given the results attained.