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Title: | Equity Risk Premium Puzzle: Evidence from Indonesia and Sri Lanka |
Authors: | Morawakage, P.S. Nimal, P.D. Kuruppuarachchi, D. |
Keywords: | emerging markets equity risk premium GARCH-M negative shocks JEL classification: G1 C5 F0 |
Issue Date: | 2019 |
Publisher: | Bulletin of Indonesian Economic Studies |
Citation: | Morawakage,P.S., Nimal,P.D. and Kuruppuarachchi,D. (2019) Equity Risk Premium Puzzle: Evidence from Indonesia and Sri Lanka, Bulletin of Indonesian Economic Studies, 55:2,P:239-248, DOI: 10.1080/00074918.2018.1529406 |
Abstract: | This paper investigates the equity risk premium puzzle in the Indonesian and Sri Lankan stock markets in order to identify the relationship between the volatility of excess returns and the equity risk premium. The asymmetric impact of negative shocks on the equity risk premium is also examined using threshold and exponential GARCH-M models. We analyse data on the excess returns of the Indonesian and Sri Lankan stock markets from 2004 to 2013, and we find that the impact of the conditional volatility of excess returns on the equity risk premium is not significant in either country. Instead, we find an impact from negative return shocks on the equity risk premium only in Sri Lanka. Therefore, we conclude that investors are not compensated for the conditional volatility of the excess returns in these two markets, while Sri Lankan investors are compensated for the risk of negative shocks. |
URI: | http://repository.kln.ac.lk/handle/123456789/20332 |
Appears in Collections: | Commerce and Financial Management |
Files in This Item:
File | Description | Size | Format | |
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Equity Risk Premium Puzzle Evidence from Indonesia and Sri Lanka-1.pdf | 223.08 kB | Adobe PDF | View/Open | |
Equity Risk Premium Puzzle Evidence from Indonesia and Sri Lanka-2.pdf | 186.97 kB | Adobe PDF | View/Open |
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