International CAPM: Why Has it Failed?
AbstractPrevious empirical studies of international CAPM models have not found much evidence to support the model. In this paper we suggest reasons why this might have happened and perform new tests using improved models and data. A range of monthly CAPM models are estimated for 1973-87 for aggregate equities and bonds in Germany, Japan, the United States and United Kingdom. The models are an improvement on earlier work in that we integrate equity markets into the analysis instead of focusing exclusively on government bond stocks, and we carefully measure the rates of return for both bonds and equities. In particular, bond returns reflect changes in the price of bonds as well as coupons. Despite this wider portfolio and the introduction of ARCH effects in the conditional covariance matrix of errors, our model still yields implausible estimates of the coefficient of relative risk aversion and provides very little explanatory power for expected relative rates of return. Correcting the ICAPM for these major deficiencies does not reverse earlier conclusions in the literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 354.
Date of creation: Nov 1989
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Tim BOLLERSLEV & Ray Y. CHOU & Narayanan JAYARAMAN & Kenneth F. KRONER, 1991. "Les modéles ARCH en finance : un point sur la théorie et les résultats empiriques," Annales d'Economie et de Statistique, ENSAE, issue 24, pages 1-59.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.