Market volatility, beta, and risks in emerging markets

Abstract

We investigate the risk and return characteristics of 59 emerging and developed stock market indices for the period 1990–2015. The main focus of our analysis is the convergence of emerging capital markets. We apply the standard Capital Asset Pricing Model (CAPM) framework to investigate the positive relationship between risk and return, and also examine the evolution of the CAPM beta. We show that CAPM betas of different stock markets converge to the world average over time. In settings applying different risk measures from beta (volatility, Expected Downside Risk, and Shannon entropy), empirical results confirm the positive relationship between risk and expected return; however, we find that international capital markets still have significant individual characteristics.