The International CAPM and a wavelet-based decomposition of Value at Risk

Viviana Fernandez

No 203, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: In this article, we formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, we derive an analytical formula for time-scale value at risk and marginal value at risk (VaR) of a portfolio. We apply our methodology to stock indices of seven emerging economies belonging to Latin America and Asia, the sample period 1990-2004. Our main conclusions are the following. First, the estimation results hinge upon the choice of the world market portfolio. In particular, the stock markets of the sampled countries appear to be more integrated with other emerging countries than with developed ones. Second, value at risk depends on the investor’s time horizon. In the short run, potential losses are greater than in the long run. Third, additional exposure to some specific stock indices will increase value at risk to a greater extent, depending on the investment horizon. Our results go in line with recent research in asset pricing that stresses the importance of heterogeneous investors.

Date: 2005
New Economics Papers: this item is included in nep-cfn, nep-rmg and nep-sea
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Citations: View citations in EconPapers (60)

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Related works:
Working Paper: The International CAPM and a Wavelet-Based Decomposition of Value at Risk (2006)
Journal Article: The International CAPM and a Wavelet-Based Decomposition of Value at Risk (2005)
Working Paper: The International CAPM and a wavelet-based decomposition of Value at Risk (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:203

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