Emerging markets face increased market risk due to liquidity constraints.
The study looked at how liquidity risk affects market risk assessment in emerging markets. They used a method called Value at Risk (VaR) to measure risk, focusing on stock indices in European emerging markets from 2009 to 2017. The researchers found that including a liquidity factor in the VaR model improved the accuracy of predicting potential losses, especially in emerging markets. This helps investors better understand and manage the risks associated with less liquid assets.