Singer/Terhaar - when to add illiquidity premium?

Should we add it when computing the integrated and segmented ERP’s or add it when computing the total ERP? The final result is the same but if CFAI asks for the integrated ERP, should we include the premium?

Add to both integrated ERP and segmented ERP for the emerging market.

I only did one of these monsters in Schweser, but in their practice test question I think you added the liquidity premium to the emerging market country in both intergrated and segmented ERP’s if I recall correctly. Can anyone out there kindly please confirm? Thanks pimp. I was still typing my response before I saw yours.

Yes Spur you are correct. The liquidity premium is added to the emerging market country in both cases.

haven’t seen one of these problems, do we just slap the illiquidity premium right onto the end of each of the following equations (corr (i,M0 ) * stand dev i ))(MRP/stand dev M) (stand dev i ))(MRP/stand dev M) and then weight by the degree of integrated and segregated to get the ERP for a particular country?

Thanks Jimmylegs and Pimp too.

It’s illiquidity premium, not liquidity premium. If they try to screw us on the test by giving us liquidity premium, I would remove it from ERP. jimmylegs Wrote: ------------------------------------------------------- > Yes Spur you are correct. The liquidity premium > is added to the emerging market country in both > cases.

Sorry… illiquidity premium.