TY - JOUR
T1 - The world price of credit risk
AU - Avramov, Doron
AU - Chordia, Tarun
AU - Jostova, Gergana
AU - Philipov, Alexander
N1 - Publisher Copyright:
© 2012 The Author.
PY - 2012/12
Y1 - 2012/12
N2 - Global asset pricing models have failed to capture the cross-section of country equity returns. Emerging markets display robust positive pricing errors, and country-level characteristics play a role in pricing international equities. This paper offers a risk-based explanation for such asset pricing deviations. A world credit risk factor is significantly priced in the cross-section of country equity returns. In its presence, the positive pricing errors in emerging markets disappear and country-level characteristics no longer play a role. The risk premium for exposure to the credit risk factor is 80 basis points per month and has increased in recent years.
AB - Global asset pricing models have failed to capture the cross-section of country equity returns. Emerging markets display robust positive pricing errors, and country-level characteristics play a role in pricing international equities. This paper offers a risk-based explanation for such asset pricing deviations. A world credit risk factor is significantly priced in the cross-section of country equity returns. In its presence, the positive pricing errors in emerging markets disappear and country-level characteristics no longer play a role. The risk premium for exposure to the credit risk factor is 80 basis points per month and has increased in recent years.
UR - https://www.scopus.com/pages/publications/84897131742
U2 - 10.1093/rapstu/ras012
DO - 10.1093/rapstu/ras012
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AN - SCOPUS:84897131742
SN - 2045-9920
VL - 2
SP - 112
EP - 152
JO - Review of Asset Pricing Studies
JF - Review of Asset Pricing Studies
IS - 2
ER -