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The CAPM, National Stock Market Betas, and Macroeconomic Covariates: A Global Analysis

Author

Listed:
  • Michael Curran

    () (Villanova University)

  • Adnan Velic

    () (Dublin Institute of Technology)

Abstract

Using global data on aggregate stock market prices, this paper finds that the standard capital asset pricing model (CAPM) fares much better than suggested in the literature. At shorter time horizons, our results also show that the positive risk-reward relation can collapse during times of high volatility. Compared to advanced and emerging markets, we retrieve evidence of lower systematic risks across frontier stock market portfolios. We find that countries characterized by higher levels of financial and trade openness, exchange rate volatility, and larger economic size are exposed to higher systematic covariances with the world stock market. Conversely, we obtain evidence of an inverse link between international reserves and systematic risks in national equity.

Suggested Citation

  • Michael Curran & Adnan Velic, 2018. "The CAPM, National Stock Market Betas, and Macroeconomic Covariates: A Global Analysis," Trinity Economics Papers tep0618, Trinity College Dublin, Department of Economics.
  • Handle: RePEc:tcd:tcduee:tep0618
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    File URL: https://www.tcd.ie/Economics/TEP/2018/TEP0618.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    portfolios; stock market; cross-country; systematic risk; capital asset pricing model; macroeconomic covariates;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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