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Reexamination Of Dynamic Betainternational Capm: A Sur With Garch Approach

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  • Kusdhianto SETIAWAN

    () (Hiroshima University of Economics, 5-37-1, Gion, Asaminami, Hiroshima -shi, Hiroshima, 731-0138 Japan)

Abstract

Considering the heteroscedasticity and cross-correlation in the error terms of international stock market returns, International Capital Asset Pricing Model (CAPM) is reinvestigated under Seemingly Unrelated Regression (SUR) and SUR with GARCH (SURGARCH) framework.We modified Feasible Generalized Least Square (FGLS) estimator to take into account multivariate GARCH error structure in estimating the model. World market portfolio was constructed to ensure that the market portfolio is mean-variance efficient under no restriction on short selling and borrowing at riskless rate. CAPM fits well only on ex-post SUR test, but it is rejected on SUR-GARCH for both ex-ante and ex-post test. However, this paper found that CAPM could be applied for most stock market indexes when each equation in SUR system was analyzed individually.

Suggested Citation

  • Kusdhianto SETIAWAN, 2012. "Reexamination Of Dynamic Betainternational Capm: A Sur With Garch Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 10, pages 105-127, December.
  • Handle: RePEc:aic:revebs:y:2012:i:10:setiawank
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    References listed on IDEAS

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    More about this item

    Keywords

    CAPM; Time Varying Beta; Seemingly Unrelated Regression (SUR); multivariate GARCH;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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