Stacy Adkins believes the equity market in one of the emerging markets that she models...
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Stacy Adkins believes the equity market in one of the emerging markets that she models has become more fully integrated with the global market. As a result, she expects it to be more highly correlated with the global market. However, she thinks its overall volatility will decline. Her old and new estimates are as follows:
Previous Data New Data Volatility (i) 22.0% 18.0% Correlation with global market (i,M) 0.50 0.70 Degree of integration () 0.55 0.75 Sharpe ratio (global and segmented markets) 0.30 0.30 If she uses the SingerTerhaar model, what will the net impact of these changes be on her risk premium estimate for this market?
Previous New Data Data 22.0% 18.0% Volatility (0) 0.50 0.70 Correlation with global market (Pim) 0.55 0.75 0.30 0.30 Degree of integration (0) Sharpe ratio (global and segmented markets)
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