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Global macroeconomic shocks, time-varying covariances and tests of the international CAPM
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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 | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Journal or Publication Title: | APPLIED ECONOMICS LETTERS | ||||
Publisher: | ROUTLEDGE | ||||
Official Date: | February 1996 | ||||
Dates: |
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Volume: | 3 | ||||
Number: | 2 | ||||
Number of Pages: | 5 | ||||
Page Range: | pp. 109-113 | ||||
Publication Status: | Published |
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