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 Economics Letters, 3, (2), pp. 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
Digital Object Identifier (DOI): doi:10.1080/135048596356816
ISSNs: 1350-4851 (print)
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ePrint ID: 37380
Date :
Date Event
1996Published
Date Deposited: 09 Feb 2007
Last Modified: 16 Apr 2017 22:03
Further Information:Google Scholar
URI: http://eprints.soton.ac.uk/id/eprint/37380

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