The Risky Capital of Emerging Markets
We build a panel of stock market returns across 37 developed and developing countries spanning five decades. We document: (1) higher and more volatile returns in poorer countries; (2) higher returns in countries whose dividends are more sensitive to global predictable growth. We quantitatively explore whether consumption-based long-run risk can reconcile these patterns. Estimating the parameters governing U.S. investor consumption growth and each market’s dividend growth process, we find that the model generates higher risk premia in emerging than developed markets, and accounts for a substantial part of the cross-country variation in mean stock market returns and their volatilities.
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Copy CitationFelix Gerding, Espen Henriksen, and Ina Simonovska, "The Risky Capital of Emerging Markets," NBER Working Paper 20769 (2014), https://doi.org/10.3386/w20769.Download Citation
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