An International Arbitrage Pricing Model with PPP Deviations
AbstractThis paper derives an intertemporal, international arbitrage pricing model that relaxes more assumptions than previous asset pricing paradigms. The analysis shows how risk, risk premia, and the translation of these variables between all real and nominal numeraires depend upon a small number of stochastic state variables that define the economy's production and credit opportunities. When the model is applied to the forward exchange market, it highlights the potentially central role of real exchange rates in determining the evolution of forward exchange risk premia. Copyright 1989 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 27 (1989)
Issue (Month): 4 (October)
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Other versions of this item:
- Ross Levine, 1986. "An international arbitrage pricing model with PPP deviations," International Finance Discussion Papers 294, Board of Governors of the Federal Reserve System (U.S.).
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