Market returns and risk factors for the emerging economies

Abstract

ABSTRACT This paper creates daily factors (much like Fama and French) and monthly aggregate idiosyncratic volatility measures for 15 emerging economies. Data deficiencies, including firm balance sheet data, are bypassed by constructing daily country factors through principal components. We focus on each country’s aggregate idiosyncratic volatility. We derive empirical measures for these volatilities and test them against prior known results. In addition, we examine the attributes of these measures by employing regime-switching, trend tests, and multiple structural breaks. An expository effort is also made to interpret the derived factors and examine their performance. Our findings indicate that the derived volatility series are robust and empirically valid in correctly detecting most of the exact timing of known volatility periods. The derived factors and volatility series will be posted online for free public access and are expected to be updated on a regular basis.