UNSPECIFIED (1996) Global macroeconomic shocks, time-varying covariances and tests of the international CAPM. APPLIED ECONOMICS LETTERS, 3 (2). pp. 109-113.

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Abstract

The mean variance efficiency (MVE) of a portfolio of international bonds and equities is tested using a CAPM model of excess returns. The conditional variances and covariances of the portfolio returns are allowed to time-vary according to shocks in up to three global macro-economic variables simultaneously. Athough the hypothesis of MVE is easily rejected within a static version of the CAPM this is not the case at conventional significance levels in the CAPM with macro-economic shocks. Results suggest that there exists a dominant role for US macroeconomic disturbances for international capital markets. Integrating macro-economic disturbances more fully into the CAPM may provide theory-consistent models which do not rely solely upon time-series representations of time-varying return variances and covariances such as ARCH.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	APPLIED ECONOMICS LETTERS
Publisher:	ROUTLEDGE
Date:	February 1996
Volume:	3
Number:	2
Number of Pages:	5
Page Range:	pp. 109-113
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/18960

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