The Relative Importance of Global, Country and Sector Risks

Girard, Eric; Ferreira, Eurico J.; Sinha, Amit K.

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The Relative Importance of Global, Country and Sector Risks

ADVANCES IN FINANCIAL PLANNING AND FORECASTING, VOL. 3, Cheng Lee, ed., Airiti Press, 2006

38 Pages Posted: 19 Dec 2009

See all articles by Eric Girard

We construct a state-dependent trivariate GARCH-M model to extract state-dependent risk-aversion coefficients around the 1997-1999 financial meltdown. These coefficients are further used to decompose sector risk into global (systematic), country-specific (diversifiable through global country allocation) and sector-specific (diversifiable through domestic sector allocation) risk measures. Our investigation shows that diversification benefits of sector-based allocation have increased as a result of the Asian meltdown. Nevertheless, the importance of country factors persists. Finally, we find that sector-specific effects are as important as country effects and increase slightly over the period of study.

Keywords: GARCH-M, Risk Decomposition, Asian Meltdown

JEL Classification: G10, G14, G15, F21

Suggested Citation: Suggested Citation

Girard, Eric and Ferreira, Eurico J. and Sinha, Amit K., The Relative Importance of Global, Country and Sector Risks (2006). ADVANCES IN FINANCIAL PLANNING AND FORECASTING, VOL. 3, Cheng Lee, ed., Airiti Press, 2006, Available at SSRN: https://ssrn.com/abstract=1525492