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International asset pricing with alternative distributional specifications

  • Campbell R. Harvey

    (Duke University)

  • Guofu Zhou

    (Washington University)

The unconditional mean-variance efficiency of the Morgan Stanley Capital International world equity index is investigated. Using data from 16 OECD countries and Hong Kong and maintaining the assumption of multivariate normality, we cannot reject the efficiency of the benchmark. However, residual diagnostics reveal significant departures from normality. We test the sensitivity of the results by specifying error structures that ¡¤are t-distributed and mixtures of normal distributions. Even after relaxing the i.i.d. assumption, we cannot reject the mean-variance efficiency of the world portfolio. Our results suggest that differences in country risk exposure, measured against the MSCI world portfolio, will lead to differences in expected returns.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 277.

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Length: 25 pages
Date of creation: 1993
Date of revision:
Publication status: Published in Journal of Empirical Finance, Volume 1, Issue 1, June 1993, Pages 107¨C131
Handle: RePEc:cuf:wpaper:277
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