Please, help me, I am reading "Investment valuation" by Damodaran stuck at defining country risk premium. Assuming that marginal investor in emerging-market firm is globally-diversified one, Damodaran presents a view that no country risk premium is necessary. Then he argues that since world markets are correlated, much of the country-specific risk would be undiversifiable and derive from this the necessity of country risk premium. But all undiversifiable risk is reflected in beta (calculated wrt market portfolio), that is we simply gonna obtain higher beta for emerging country's firms than for

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anonymous · Answer

dometic ones. Then why not set risk premium = beta*risk premium on average asset in global portfolio?