The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets
This paper attempts to determine whether the fluctuations of conditional first and second moments--which are observed for many assets--are consistent with the Sharpe-Lintner-Mossin capital asset pricing model. The authors test the mean-variance model under several different assumptions about the time variation of conditional second moments of returns, using weekly data from July 1974 to December 1986, that include returns on a portfolio composed of dollar, Deutsche mark, sterling, and Swiss franc assets, together with the U.S. stock market. The results indicate that estimated conditional variances cannot explain the observed time variation of risk premia. Copyright 1989 by American Finance Association.
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Volume (Year): 44 (1989)
Issue (Month): 2 (June)
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- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
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- 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.
- Giovannini, Alberto & Jorion, Philippe, 1987. "Interest rates and risk premia in the stock market and in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 107-123, March. Full references (including those not matched with items on IDEAS)
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