Ibex Index and the Risk Premium Rate.

Ibex Index and the Risk Premium Rate.

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       There are many determinants that explain the level of a stock market index and one of them is obviously risk.  If all markets have the same risk they would certainly move “together” depending on the expectations about fundamentals and technical momentum. But as not all markets have the same risk then it is possible to study the effect that Risk Premium Rate has in the decoupling of a single market to a major one that is considered Risk Premium “Free” and to incorporate that factor in to your investment model.

The Spanish index, the Ibex, suffered a decoupling from Dow Jones Industrials during the days where the European Crises focused in her lack of Public Management, as you can see in the chart below.

As the uncertainty lived in the past in Spain left a record in the memory of investors, her Public Choices united to Rating revisions will be present in the expectations of investor’s valuation for the foreseeable future. The relationship between the Ibex and the Risk Premium Rate is shown in the chart below.

As the Spanish Government is capable (or not) of reducing that expectations of higher Risk Premium Rate, the Ibex will move similarly to DJIND and a similar conclusion could be taken for other European Indexes although all of them suffer a contagion of certain degree. These are certainly the main factors that explain most of divergences between European and American Indexes.

© Luis Riestra Delgado December 2011.

As always, you can click the chart to check the details.

4 Comments to “Ibex Index and the Risk Premium Rate.”

  1. Lane Netters dice:

    this is something i have never ever read.really detailed analysis.

  2. Josefine Elhaj dice:

    Hi, that’s really good, keep up writing.

  3. Broderick Kraichely dice:

    I like this post, thanks for posting.

  4. S. Jansen. dice:

    I am no longer sure the place you are getting your info, but great topic.
    I must spend some time studying much more or figuring out more.
    Thank you for great info I used to be looking for this info for my mission.

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