Erasmus university rotterdam
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- Bu səhifədəki naviqasiya:
- Market correlations
- Country risk premium
Table 2. Descriptive statistics for the market returns and the risk-free rate series in four emerging markets
Returns are weekly returns in percentage * JB significant at a 1% level ** JB significant at a 5% level Source MSCI indices: Thomson Financial Datastream Database Source for the risk-free rate: website of the Federal Reserve Bank Market correlationsTable 3 displays the correlations of the MSCI country indices and the MSCI World index during different time periods. As the table shows the correlations between the emerging markets are low. Furthermore, in the periods before the financial crisis the countries are not highly correlated with the world market, as expected Israel (0.547) and Turkey (0.380) show the highest correlation with the world market. The table shows that during normal economic conditions the returns on these five markets are not highly correlated with each other, nor with the world market. However, in times of financial crisis stock market tend to become more correlated, Baig and Goldfajn (1998) find evidence of contagion in Asian financial markets during the Asian Crisis. Cross-country correlations increased significantly during the Asian crisis period, this is in line with the findings in table 3. In the period from August 2008 and September 2009 the correlations between the countries increase considerably, for instance the correlation between Egypt and Turkey changes from 0.110 to .522. The correlation between the countries and the world market also increase noticeably. Turkey’s correlation with the world market changes from 0.380 to 0.827, while Egypt’s correlation increases from 0.089 to 0.558. Interestingly Israel’s correlation with the other emerging markets increases in the crisis period, but the correlation with the world market decreases (0.547 vs. 0.497). Table 3. Historical correlations matrix of the four emerging stock markets and the world market
Country risk premiumA country risk premium was computed as the spread between a 10-year US Credit Default Swap (CDS) and a similar sovereign CDS. As table 4 shows, the countries differ in their market risk premiums. As could be expected the US 10 year senior CDS is very low. And as Damodaram (2000) suggested it seems that the market premium of an emerging market can be considered as the premium in the developed market with a country risk premium added to it. Table 1 shows that Turkey and Egypt have the highest country risk premiums, whereas Israel and Morocco display a much smaller country risk premium. The table also shows that the CDS-spread is different according to which time period is considered. When the CDS-spread before the crisis is compared with the CDS-spread during the crisis, it shows that the CDS-spread is much larger during the financial crisis, for instance, Israel’s CDS-spread is more than three times as large (41 vs. 126). Turkey’s CDS-spread just slightly increases (198 vs. 216), but it must be noted that the value for the CDS-spread was high before the onset of the financial crisis. Table 4. Credit Default Swap (CDS) data
Source: Thomson Financial DataStream (rates are expressed in basispoints) Yüklə 1,46 Mb. Dostları ilə paylaş:
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