Equity Risk Factors for a Small Open Economy: A Risk Management Perspective

Asgharian, Hossein; Hansson, Björn

Volume 5, Number 4 / December , Pages 225-311

Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 225-257

Hossein Asgharian , Lund University, Sweden Corresponding Author

Björn Hansson , Lund University, Sweden

Abstract:
This article seeks to find factors that can account for the determinants of common variations in returns for a small open economy where the Swedish stock market serves as an example. The importance of the candidate factors is first analyzed by looking at the standard deviation of their mimicking portfolio returns, while their performance is evaluated from a risk management viewpoint. The results of the volatility analysis verify that the market, as represented by both the world market portfolio and the Swedish home market portfolio, is a crucial factor and most of the macro factors seem to be redundant. The results of the risk management exercise show that the market factor and the portfolios mimicking size and book-to-market ratio are important

Keywords : multifactor models; open economy; return covariance; risk management
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