A Dynamic and Stochastic Beta and Its Implications in Global Capital Markets

Hong‐Jen Lin and Winston T. Lin

International Finance, 2000, vol. 3, issue 1, 123-160

Abstract: This article investigates the dynamic and stochastic behaviour of the beta coefficient of the one‐factor international capital asset pricing model (ICAPM), and its implications for the pricing of stock markets at the country level and the forecasting of stock returns in global stock markets. We apply several novel econometric techniques and conduct necessary statistical tests. We find that the ICAPM has a stochastic and dynamic beta coefficient and that the global stock market is efficient and integrated, and the world market portfolio is mean‐variance efficient. We demonstrate that the dynamic and stochastic behaviour of country betas for the developed countries differs from that of developing economies. The empirical results indicate that the trend and the unexpected change of the foreign exchange rate contribute significantly to the variation patterns of country betas, and that explicit consideration of such changing characteristics will serve to increase the accuracy of stock return forecasts in global stock markets.

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://doi.org/10.1111/1468-2362.00044

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:bla:intfin:v:3:y:2000:i:1:p:123-160

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1367-0271

Access Statistics for this article

International Finance is currently edited by Benn Steil

More articles in International Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().