A Dynamic and Stochastic Beta and Its Implications in Global Capital Markets
AbstractThis article investigates the dynamic and stochastic behaviour of the beta coefficient of the one-factor international capital asset pricing model (ICAPM), and its implications for the pricing of stock markets at the country level and the forecasting of stock returns in global stock markets. We apply several novel econometric techniques and conduct necessary statistical tests. We find that the ICAPM has a stochastic and dynamic beta coefficient and that the global stock market is efficient and integrated, and the world market portfolio is mean-variance efficient. We demonstrate that the dynamic and stochastic behaviour of country betas for the developed countries differs from that of developing economies. The empirical results indicate that the trend and the unexpected change of the foreign exchange rate contribute significantly to the variation patterns of country betas, and that explicit consideration of such changing characteristics will serve to increase the accuracy of stock return forecasts in global stock markets. Copyright 2000 by Blackwell Publishers Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal International Finance.
Volume (Year): 3 (2000)
Issue (Month): 1 (April)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271
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- Chen, Yueh H. & Lin, Winston T., 2009. "Analyzing the relationships between information technology, inputs substitution and national characteristics based on CES stochastic frontier production models," International Journal of Production Economics, Elsevier, vol. 120(2), pages 552-569, August.
- Raj Aggarwal & Brian M. Lucey & Sunil K. Mohanty, 2006. "The Forward Exchange Rate Bias Puzzle: Evidence from New Cointegration Tests," The Institute for International Integration Studies Discussion Paper Series iiisdp123, IIIS.
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