Global macroeconomic shocks, time-varying covariances and tests of the international CAPM
Clare, A., O'Brien, R., Smith, P.N. and Thomas, S. (1996) Global macroeconomic shocks, time-varying covariances and tests of the international CAPM. Applied Economic Letters, 3, (2), 109-113. (doi:10.1080/135048596356816).
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Description/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: | Article |
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| Related URLs: | |
| Subjects: | H Social Sciences > HB Economic Theory |
| Divisions: | University Structure - Pre August 2011 > School of Social Sciences > Economics University Structure - Pre August 2011 > School of Management |
| Item ID: | 37380 |
| Date Deposited: | 09 Feb 2007 |
| Last Modified: | 25 Apr 2013 14:04 |
| Contributors: | Clare, A. (Author) O'Brien, R. (Author) Smith, P.N. (Author) Thomas, S. (Author) |
| Date: | 1996 |
| Status: | Published |
| URI: | http://eprints.soton.ac.uk/id/eprint/37380 |
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