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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. 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.
  2. 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.
  3. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  4. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  5. 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.
  6. Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
  7. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. 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.
  11. Marcel Fratzscher, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series 48, European Central Bank.
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