Estimating the Impact of Risks on Emerging Equity Market Performance: Further Evidence on Data from Rating Agencies Available to Purchase

The allocative efficiency of global financial markets depends on, among other things, the informational reliability of risk data provided by rating agencies. This study extends the current literature by using country risk data from Euromoney to estimate the impact of political, economic, default and credit risks on stock returns, P/E ratios, dividend yield and price/book value ratios of emerging equity markets. The results are mixed, similar to those of studies using data from Institutional Investor Country Credit Ratings and International Country Risk Guide. The failure of rating agencies to predict the Mexican and the Asian crises casts some doubts on these data for analytical purposes. Improvement in the quality of the data is important as other forecasting techniques are considered.