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Determinants of time-varying equity risk premia in an emerging market

Author

Listed:
  • Işıl Candemir
  • Cenk C. Karahan

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 Gagliardiniet 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.

Suggested Citation

  • Işıl Candemir & Cenk C. Karahan, 2022. "Determinants of time-varying equity risk premia in an emerging market," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 19(6), pages 1492-1520, September.
  • Handle: RePEc:eme:ijoemp:ijoem-01-2022-0168
    DOI: 10.1108/IJOEM-01-2022-0168
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    More about this item

    Keywords

    Asset pricing; Equity risk premium; CAPM; Multifactor models; G10; G12; G15;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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