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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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.
|Digital Object Identifier (DOI):||doi:10.1080/135048596356816|
|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
|Accepted Date and Publication Date:||
|Date Deposited:||09 Feb 2007|
|Last Modified:||31 Mar 2016 12:06|
|RDF:||RDF+N-Triples, RDF+N3, RDF+XML, Browse.|
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