TY - JOUR
T1 - Spatial linkages in international financial markets
AU - Fernandez, Viviana
N1 - Funding Information:
Financial support from FONDECYT grant No. 1070762 is greatly acknowledged. All remaining errors are those of the author.
PY - 2011/2
Y1 - 2011/2
N2 - Spatial dependency has been studied in several research areas, such as environmental criminology, economic geography, environmental sciences, and urban economics. However, it has essentially been overlooked in other subfields of economics and in the field of finance as a whole. A key element at stake is the definition of contiguity. In the context of financial markets, defining a metric distance is not a simple matter. In this article, we explore the notion of spatial dependency by formulating a spatial version of the capital asset pricing model (S-CAPM). Such a model specification makes it possible to account for alternative measures of distance between firms, such as market capitalization, the market-to-book, and other financial ratios. Our model is tested on a panel of 126 Latin American firms. In addition, we derive Value-at-Risk (VaR) measures from our S-CAPM formulation. We complement our discussion with Monte Carlo simulations aimed at quantifying the benefits of diversification in terms of VaR reduction.
AB - Spatial dependency has been studied in several research areas, such as environmental criminology, economic geography, environmental sciences, and urban economics. However, it has essentially been overlooked in other subfields of economics and in the field of finance as a whole. A key element at stake is the definition of contiguity. In the context of financial markets, defining a metric distance is not a simple matter. In this article, we explore the notion of spatial dependency by formulating a spatial version of the capital asset pricing model (S-CAPM). Such a model specification makes it possible to account for alternative measures of distance between firms, such as market capitalization, the market-to-book, and other financial ratios. Our model is tested on a panel of 126 Latin American firms. In addition, we derive Value-at-Risk (VaR) measures from our S-CAPM formulation. We complement our discussion with Monte Carlo simulations aimed at quantifying the benefits of diversification in terms of VaR reduction.
KW - Econometrics of financial markets
KW - Emerging markets
KW - Financial engineering
UR - http://www.scopus.com/inward/record.url?scp=78951491894&partnerID=8YFLogxK
U2 - 10.1080/14697680903127403
DO - 10.1080/14697680903127403
M3 - Article
AN - SCOPUS:78951491894
SN - 1469-7688
VL - 11
SP - 237
EP - 245
JO - Quantitative Finance
JF - Quantitative Finance
IS - 2
ER -