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School of Business | Department of Economics | Economics | 2015
Thesis number: 14222
Global factors in country equity index pricing
Author: Kiviranta, Tuomas
Title: Global factors in country equity index pricing
Year: 2015  Language: eng
Department: Department of Economics
Academic subject: Economics
Index terms: taloustieteet; economic science; hinnat; prices; hinnoittelu; pricing; rahoitus; financing
Pages: 58
Key terms: empirical asset pricing, international asset pricing, index investing, international asset pricing model, Global Macro strategies
In my M.Sc. (Econ.) thesis, I study the pricing process behind country equity indexes. I use a simple global single-factor capital asset pricing model, testing one additional factor at a time. I find that a strategy that buys equity indexes in the lowest quartile of market capitalization to GDP ratio and sells equity indexes in the highest quartile of market capitalization to GDP ratio can produce systematic excess returns. I argue that this finding is supportive of a mean reversal phenomenon in the ratio - and does not reflect a compensation requirement for higher risk. Additionally, I find that investors do not require a country risk premium for investing in a given country instead of investing a global market index. I argue, that this happens because of implicit barriers to international investment and because index constituents can provide investors international diversification benefits.

My thesis proceeds as follows. I begin with a comprehensive literature review, which covers the seminal studies in asset pricing and international asset pricing literature. I then proceed by explaining my theoretical framework and my empirical methodology. A reader wishing to familiarize herself with my empirical data is provided extensive descriptive statistics and metrics. I finish by presenting my results and putting them in a theoretical context.
Master's theses are stored at Learning Centre in Otaniemi.