Browsing by Author "Qi, Jinfeng Jr"

It is widely discussed in numerous economic and financial literature that the equity risk premium is in close relation with other financial or economic issues. Classical articles mostly focus on developed markets as they start early ensuring long enough time series for doing research. Nowadays, financial markets in emerging countries play a more vital role in global market. I test the degree of integration and find that emerging markets are more and more integrated with global market. Nevertheless, in their early stage some emerging markets behave differently from developed markets. This article mainly focuses on the differences in equity risk premium between 6 emerging markets and 4 developed markets and the difference will be discussed in four parts. The first part is on the discussion about premium puzzle then I use the ERP dominated in both U.S. Dollar and local currencies to test the distribution attributes in both markets and it shows that emerging markets will compensate investors with more returns for more risks their equities contain than developed markets. From their distribution attribution I find the time varying nature of ERP in emerging markets. Then I use CAPM to compare the difference of time varying nature result from global business cycle between emerging and developed markets and figure out that global business cycle can explain the time varying nature of ERP in developed markets better than emerging markets. There is huge effect of local information on ERP in emerging markets so that I add liquidity based on the one-factor model to further my research. Moreover, I use VAR model to exhibit the casual relations between liquidity and ERP.