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Variance risk premiums in emerging markets

Author

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  • Qiao, Fang
  • Xu, Lai
  • Zhang, Xiaoyan
  • Zhou, Hao

Abstract

We provide for the first time the emerging market variance risk premium (EMVRP) from 2006 to 2023, based on nine emerging stock and option markets—Brazil, China, India, South Korea, Mexico, Poland, Russia, South Africa, and Taiwan. The EMVRP significantly predicts international stock returns and currency appreciation rates, especially for horizons longer than six months. This is in sharp contrast with the predictive pattern of the developed market variance risk premium (DMVRP), which is more important over horizons shorter than six months. These findings are consistent with an illustrative model incorporating partial market integration and heterogeneous economic uncertainty.

Suggested Citation

  • Qiao, Fang & Xu, Lai & Zhang, Xiaoyan & Zhou, Hao, 2024. "Variance risk premiums in emerging markets," Journal of Banking & Finance, Elsevier, vol. 167(C).
    • Handle: RePEc:eee:jbfina:v:167:y:2024:i:c:s0378426624001730
    DOI: 10.1016/j.jbankfin.2024.107259
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    More about this item

    Keywords

    Variance risk premium; Emerging markets; Stock return predictability; Currency return predictability; Economic uncertainty;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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