Economic Archive

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  Risk Attribution – a Model for Establishing the Impact of Global Risk Factors

  The global recession that started in the twenty-first century forced investors to invent or re-discover a paradigm for risk treatment. The solution lies in the risk attribution of historical stock return of listed companies in relation to global macroeconomic factors, its decomposition and research in terms of risk exposure and risk premia. The ... The global recession that started in the twenty-first century forced investors to invent or re-discover a paradigm for risk treatment. The solution lies in the risk attribution of historical stock return of listed companies in relation to global macroeconomic factors, its decomposition and research in terms of risk exposure and risk premia. The consistency of this approach enables investors to act as risk managers and macro analysts of equity markets and to predict potential sources of risk for companies, the stock exchange, the economy, and the globalizing world.

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  Comparative Analysis of the Leading Consumption-Based Asset Pricing Models

  The article analyzes in depth the consumption-based asset pricing models, and displays most perspective contemporary trends in the field. A conceptual framework of models has been originally presented linking macroeconomic and financial relationships, and mathematical basis of the classic CCAPM has been developed. The paper also brings out the ... The article analyzes in depth the consumption-based asset pricing models, and displays most perspective contemporary trends in the field. A conceptual framework of models has been originally presented linking macroeconomic and financial relationships, and mathematical basis of the classic CCAPM has been developed. The paper also brings out the leading approaches for modification of the basic model, overcoming some of its shortcomings, and analyzes the advantages, disadvantages and the ability of consumption-based modern models to recreate empirical correlations in profitability and the risk of financial assets. The leading conclusion of the article is that there is still no convincing rational consensus model to reproduce adequately the characteristics of financial markets. From an econometric perspective, the closest in this endeavour is the model of long-term risk of Bansal and Yaron (2004) and its modifications.

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  Testing the Damodaran Approach to Estimate the Cost of Equity in Emerging Markets

  The cost of equity is one of the key financial and economic indicators in corporate finance. The purpose of this paper is to test the well-known approach of Damodaran in global emerging markets. The main result of the study is that the Damodaran approach needs to be improved as it maintains constant deviation from the observed ex-post cost of ... The cost of equity is one of the key financial and economic indicators in corporate finance. The purpose of this paper is to test the well-known approach of Damodaran in global emerging markets. The main result of the study is that the Damodaran approach needs to be improved as it maintains constant deviation from the observed ex-post cost of equity.