### Abstract

Original language | English |
---|---|

Place of Publication | Tilburg |

Publisher | Finance |

Number of pages | 46 |

Volume | 2001-78 |

Publication status | Published - 2001 |

### Publication series

Name | CentER Discussion Paper |
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Volume | 2001-78 |

### Fingerprint

### Keywords

- return on investment
- economic integration
- international financial markets
- capital markets

### Cite this

*Time Varying Market Integration and Expected Rteurns in Emerging Markets*. (CentER Discussion Paper; Vol. 2001-78). Tilburg: Finance.

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**Time Varying Market Integration and Expected Rteurns in Emerging Markets.** / de Jong, F.C.J.M.; de Roon, F.A.

Research output: Working paper › Discussion paper › Other research output

TY - UNPB

T1 - Time Varying Market Integration and Expected Rteurns in Emerging Markets

AU - de Jong, F.C.J.M.

AU - de Roon, F.A.

N1 - Pagination: 46

PY - 2001

Y1 - 2001

N2 - We use a simple model in which the expected returns in emerging markets depend on their systematic risk as measured by their beta relative to the world portfolio as well as on the level of integration in that market.The level of integration is a time-varying variable that depends on the market value of the assets that can be held by domestic investors only versus the market value of the assets that can be traded freely.Our empirical analysis for 30 emerging markets shows that there are strong effects of the level of integration or segmentation on the expected returns in emerging markets.The expected returns depend both on the level of segmentation of the emerging market itself and on the regional segmentation level.We also find that there is significant time-variation in the betas relative to the world portfolio because of the level of segmentation.For the composite index of the emerging markets we find an annual increase in beta of 0.09 due to decreased segmentation of the emerging markets in our sample period.In terms of expected returns the total effect on the composite index translates into an average decrease of 4.5 percent per annum.As predicted by our model, the noninvestable assets are more sensitive to the local and less to the regional level of segmentation than the investable assets.These conclusions do not change when using additional control variables. We do not find a clear pattern between volatility and segmentation, however.

AB - We use a simple model in which the expected returns in emerging markets depend on their systematic risk as measured by their beta relative to the world portfolio as well as on the level of integration in that market.The level of integration is a time-varying variable that depends on the market value of the assets that can be held by domestic investors only versus the market value of the assets that can be traded freely.Our empirical analysis for 30 emerging markets shows that there are strong effects of the level of integration or segmentation on the expected returns in emerging markets.The expected returns depend both on the level of segmentation of the emerging market itself and on the regional segmentation level.We also find that there is significant time-variation in the betas relative to the world portfolio because of the level of segmentation.For the composite index of the emerging markets we find an annual increase in beta of 0.09 due to decreased segmentation of the emerging markets in our sample period.In terms of expected returns the total effect on the composite index translates into an average decrease of 4.5 percent per annum.As predicted by our model, the noninvestable assets are more sensitive to the local and less to the regional level of segmentation than the investable assets.These conclusions do not change when using additional control variables. We do not find a clear pattern between volatility and segmentation, however.

KW - return on investment

KW - economic integration

KW - international financial markets

KW - capital markets

M3 - Discussion paper

VL - 2001-78

T3 - CentER Discussion Paper

BT - Time Varying Market Integration and Expected Rteurns in Emerging Markets

PB - Finance

CY - Tilburg

ER -