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International Asset Pricing and Portfolio Diversification with Time-Varying Risk

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Author Info
 De Santis, Giorgio
Gerard, Bruno
Abstract

The authors test the conditional capital asset pricing model (CAPM) for the world's eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity (GARCH) parameterization. Their methodology can be applied simultaneously to many assets and, at the same time, accommodate general dynamics of the conditional moments. The evidence supports most of the pricing restrictions of the model, but some of the variation in risk-adjusted excess returns remains predictable during periods of high interest rates. The authors' estimates indicate that, although severe market declines are contagious, the expected gains from international diversification for a U.S. investor average 2.11 percent per year and have not significantly declined over the last two decades. Copyright 1997 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 5 (December)
Pages: 1881-1912
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:5:p:1881-1912

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  2. Salem Boubakri, 2009. "Une mesure financière de l’importance de la prime de risque de change dans la prime de risque boursière," EconomiX Working Papers 2009-5, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  3. Timotheos Angelidis & Nikolaos Tessaromatis, 2009. "The Efficiency of Greek Public Pension Fund Portfolios," Working Papers 0035, University of Peloponnese, Department of Economics. [Downloadable!]
  4. Li L. Ong & Srobona Mitra & Jorge A. Chan-Lau, 2007. "Contagion Risk in the International Banking System and Implications for London as a Global Financial Center," IMF Working Papers 07/74, International Monetary Fund. [Downloadable!]
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  7. Alain Abou & Georges Prat, 1986. "Ex-ante risk premia in the US stock market: analysing experts' behaviour at the individual level," Post-Print halshs-00172883_v1, HAL. [Downloadable!]
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