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An International Dynamic Asset Pricing Model

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  • Robert Hodrick
  • David Ng
  • Paul Sengmueller

Abstract

We examine the ability of a dynamic asset-pricing model to explain the returns on G7-country stock market indices. We extend Campbell's (1996) asset-pricing model to investigate international equity returns. We also utilize and evaluate recent evidence on the predictability of stock returns. We find some evidence for the role of hedging demands in explaining stock returns and compare the predictions of the dynamic model to those from the static CAPM. Both models fail in their predictions of average returns on portfolios of high book-to-market stocks across countries. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • Robert Hodrick & David Ng & Paul Sengmueller, 1999. "An International Dynamic Asset Pricing Model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 597-620, November.
  • Handle: RePEc:kap:itaxpf:v:6:y:1999:i:4:p:597-620
    DOI: 10.1023/A:1008713724886
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Martin Lettau, 2001. "Consumption, Aggregate Wealth, and Expected Stock Returns," Journal of Finance, American Finance Association, vol. 56(3), pages 815-849, June.
    2. Connor, Gregory & Linton, Oliver, 2007. "Semiparametric estimation of a characteristic-based factor model of common stock returns," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 694-717, December.
    3. John Y. Campbell & Tuomo Vuolteenaho, 2004. "Bad Beta, Good Beta," American Economic Review, American Economic Association, vol. 94(5), pages 1249-1275, December.
    4. Shi, Lei, 2016. "Consumption-based CAPM with belief heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 65(C), pages 30-46.
    5. Marina Emiris, 2002. "Measuring capital market integration," BIS Papers chapters,in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 200-221 Bank for International Settlements.
    6. Li, Kai & Sarkar, Asani & Wang, Zhenyu, 2003. "Diversification benefits of emerging markets subject to portfolio constraints," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 57-80, February.
    7. Zhenyu Wang & Asani Sarkar & Kai Li, 1999. "Assessing the impact of short-sale constraints on the gains from international diversification," Staff Reports 89, Federal Reserve Bank of New York.
    8. Tobias Adrian & Erkko Etula, 2010. "Funding liquidity risk and the cross-section of stock returns," Staff Reports 464, Federal Reserve Bank of New York.
    9. Cesare Robotti, 2001. "The price of inflation and foreign exchange risk in international equity markets," FRB Atlanta Working Paper 2001-26, Federal Reserve Bank of Atlanta.
    10. Tyler Muir & Erkko Etula & Tobias Adrian, 2011. "Broker-Dealer Leverage and the Cross-Section of Stock Returns," 2011 Meeting Papers 1448, Society for Economic Dynamics.
    11. Martin Lettau & Sydney Ludvigson, 2001. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1238-1287, December.
    12. Michael R. King & Dan Segal, 2003. "Valuation of Canadian- vs. U.S.-Listed Equity: Is There a Discount?," Staff Working Papers 03-6, Bank of Canada.

    More about this item

    Keywords

    capital asset pricing model (CAPM); international stock returns; intertemporal hedging;

    JEL classification:

    • G0 - Financial Economics - - General
    • F3 - International Economics - - International Finance

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