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Exposure to the world and trading-bloc risks: A multivariate capital asset pricing model

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  • Hooy, Chee-Wooi
  • Goh, Kim-Leng

Abstract

This paper employs a capital asset pricing model that incorporates both world and trading-bloc factors to show that the recent trend of trade regionalism has led to segmentation of world stock markets. The model is developed within a multivariate GARCH framework. The conditional time-varying betas are derived to examine the dynamics of risk exposures to the world and trading-bloc factors. The results show risk exposure behaviour that is not revealed using static risk estimates.

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File URL: http://www.sciencedirect.com/science/article/B7CPK-4Y0D6BY-1/2/c77599903823d0888854b5af147989c7
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Bibliographic Info

Article provided by Elsevier in its journal Research in International Business and Finance.

Volume (Year): 24 (2010)
Issue (Month): 2 (June)
Pages: 206-222

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Handle: RePEc:eee:riibaf:v:24:y:2010:i:2:p:206-222

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Web page: http://www.elsevier.com/locate/ribaf

Related research

Keywords: Multivariate GARCH Regionalism Systematic risks Time-varying beta;

References

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  1. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
  2. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
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  4. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  5. Fratzscher, Marcel, 2002. "Financial Market Integration in Europe: On the Effects of EMU on Stock Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(3), pages 165-93, July.
  6. Christie, Andrew A., 1982. "The stochastic behavior of common stock variances : Value, leverage and interest rate effects," Journal of Financial Economics, Elsevier, vol. 10(4), pages 407-432, December.
  7. Akdogan, Haluk, 1992. "Behavior of systematic risk in a regionally integrated model for stock prices," Economics Letters, Elsevier, vol. 39(2), pages 213-216, June.
  8. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  9. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
  10. Adler, Michael & Qi, Rong, 2003. "Mexico's integration into the North American capital market," Emerging Markets Review, Elsevier, vol. 4(2), pages 91-120, June.
  11. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
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Cited by:
  1. Curran, Louise & Zignago, Soledad, 2012. "EU enlargement and the evolution of European production networks," Research in International Business and Finance, Elsevier, vol. 26(2), pages 240-257.

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