Equity premia in emerging markets: National characteristics as determinants

There is little research on international equity premia estimates. Using improved and consistent methodologies covering a recent 8-year period, this paper estimates annual equity premia for sixteen emerging markets and finds that they are generally low even compared to risk-free rates. In addition, based on a panel-data regression analysis, this paper finds that, for emerging markets, equity premia narrow with higher market synchronicity, higher economic inequality and better civil liberties, while equity premia widen with better regulatory quality and investor protection and greater international corporate bond spreads. Our results suggest the possibility that in many emerging markets there are nonpecuniary benefits to holding equity or that controlling ownerships have preferential access to capital. These results pose important questions regarding the role of equity in emerging markets. Given the importance of the equity premium, these results should be of great interest to practitioners and researchers. (C) 2008 Elsevier B.V. All rights reserved.