Conditional Pricing of Currency Risk in Africa's Equity Market
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Date
2018-12-01
Authors
Kodongo, Odongo
Ojah, Kalu
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
In this paper, we sought to establish whether Africa’s volatile currencies drive equity risk premium.
We use the stochastic discount factor (SDF) framework to estimate various conditional specifications
of the International Capital Asset Pricing Model through generalized method of moments technique.
Our results show strong evidence of conditional, time-varying currency risk premium in equity returns.
Currency risk is also perceived by international investors as important in informing the equities pricing
kernel. We also find evidence that international investors are worried about Africa’s small size equity
markets and build anticipated low trading into their pricing calculus.
Description
HG 201
Keywords
currency risk , equity markets , stochastic discount factor , GMM , africa