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A Test of International CAPM

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  • Charles Engel
  • Anthony P. Rodrigues

Abstract

We propose and implement a Wald test of the international capital asset pricing model. Ex post asset returns are regressed on asset supplies. CAPM requires that the matrix of coefficients from a regression of n rates of return on n asset supply shares be proportional to the covariance matrix of the residuals from those regressions. We test this restriction in the context of a model that aggregates all outside financial assets for each of ten countries. We do not find strong support for the restrictions of CAPM.

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File URL: http://www.nber.org/papers/w2054.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2054.

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Date of creation: Apr 1994
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Handle: RePEc:nbr:nberwo:2054

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  1. Frankel, Jeffrey A., 1982. "In search of the exchange risk premium: A six-currency test assuming mean-variance optimization," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 255-274, January.
  2. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
  3. Engel, Charles M., 1984. "Testing for the absence of expected real profits from forward market speculation," Journal of International Economics, Elsevier, vol. 17(3-4), pages 299-308, November.
  4. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-55, December.
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Cited by:
  1. Charles Engel & Jeffrey A. Frankel & Kenneth A. Froot & Anthony P. Rodrigues, 1989. "Conditional Mean-Variance Efficiency of the U.S. Stock Market," NBER Working Papers 2890, National Bureau of Economic Research, Inc.

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