International capital asset pricing model: the case of asymmetric information and short-sale

Makram Bellalah () and Fredj Amine Dammak ()
Additional contact information
Makram Bellalah: CRIISEA Amiens University
Fredj Amine Dammak: CRIISEA Amiens University

Annals of Operations Research, 2019, vol. 281, issue 1, No 8, 173 pages

Abstract: Abstract We develop an international capital asset pricing model in the presence of shadow costs of incomplete information and short sales. Our model shows the direct effect of exchange rate risk, information costs and short sales costs on asset prices. At equilibrium, this model gives an explicit expression of two systematic risk premium. The first one is linked to the exchange rate. The second one is related to international market risk. Our model explains in part the well-known home bias equity by market segmentation. This model, which is proposed for the first time in the literature, can be seen as an international version of Wu et al. (Rev Quant Finance Account 7:119–136, 1996) and Merton (J Finance 42:483–511, 1987) models of capital market equilibrium in international markets. Our analysis shows that the dispersion in beliefs increases the market inefficiency, and that short sale constraints can reduce the cost of ignorance and the magnitude of the home bias equity. Our model provides an operational approach in asset pricing to take account of previous important costs.

Keywords: Asset allocation; International market; Information costs; Short sale; Home bias (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10479-019-03133-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:281:y:2019:i:1:d:10.1007_s10479-019-03133-1

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-019-03133-1

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().