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Tests of mean-variance efficiency of international equity markets

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  • Charles M. Engel
  • Anthony P. Rodrigues

Abstract

The authors develop tests for mean-variance efficiency of international equity markets for ten OPEC countries. A Wald test that allows for time-varying variances of excess returns rejects a version of mean-variance efficiency. The source of the rejection is not entirely clear, so the authors use a minimum distance estimator to estimate the mean-variance efficiency model. While they formally reject the mean-variance efficiency constraints in this model, the estimated constrained asset demand equations are revealing. Copyright 1993 by Royal Economic Society.
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Suggested Citation

  • Charles M. Engel & Anthony P. Rodrigues, 1992. "Tests of mean-variance efficiency of international equity markets," Research Paper 9209, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednrp:9209
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    References listed on IDEAS

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    1. Peter C. B. Phillips & Mico Loretan, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 407-436.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    3. Hodrick, Robert J., 1989. "Risk, uncertainty, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 433-459, May.
    4. Clinton Shiells & Robert Stern & Alan Deardorff, 1989. "Estimates of the elasticities of substitution between imports and home goods for the United States: Reply," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 371-374.
    5. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    6. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
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    Citations

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    Cited by:

    1. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    2. Engel, Charles & Frankel, Jeffrey A. & Froot, Kenneth A. & Rodrigues, Anthony P., 1995. "Tests of conditional mean-variance efficiency of the U.S. stock market," Journal of Empirical Finance, Elsevier, vol. 2(1), pages 3-18, March.
    3. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, pages 123-192.
    4. Karen K. Lewis, 1994. "Puzzles in International Financial Markets," NBER Working Papers 4951, National Bureau of Economic Research, Inc.
    5. Karen K. Lewis, 1998. "International Home Bias in International Finance and Business Cycles," NBER Working Papers 6351, National Bureau of Economic Research, Inc.
    6. Linda L. Tesar & Ingrid M. Werner, 1994. "International Equity Transactions and U.S. Portfolio Choice," NBER Chapters,in: The Internationalization of Equity Markets, pages 185-227 National Bureau of Economic Research, Inc.
    7. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Books, National Bureau of Economic Research, Inc, number fran94-1, January.
    8. Frankel, Jeffrey A., 1994. "The Internalization of Equity Markets: Introduction," Center for International and Development Economics Research (CIDER) Working Papers 233216, University of California-Berkeley, Department of Economics.
    9. Charles Engel, Jeffrey A. Frankel, Kenneth A. Froot, and Anthony Rodrigues., 1990. "The Constrained Asset Share Estimation (CASE) Method: Testing Mean-Variance Efficiency of the U.S. Stock Market," Economics Working Papers 90-134, University of California at Berkeley.
    10. N. Groenewold & P. Fraser, 1997. "Time-varying betas & macroeconomic influences," Economics Discussion / Working Papers 97-09, The University of Western Australia, Department of Economics.
    11. T. J. Flavin & M. G. Limosani, 2000. "Fiscal policy and the term premium in real interest rate differentials," Applied Financial Economics, Taylor & Francis Journals, pages 413-417.
    12. Stephen Hall & Anna Zelweska-Mitura, "undated". "Modelling Emerging Financial Markets and their Approach to Market Efficiency," Computing in Economics and Finance 1996 _066, Society for Computational Economics.

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    Keywords

    International finance ; Stock market;

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