Pricing of the currency risk in the Canadian equity market

Mohammad Al-Shboul and Sajid Anwar

Research in International Business and Finance, 2014, vol. 30, issue C, 173-194

Abstract: Based on a three-factor international capital asset pricing model, we examine whether the world market, the local market and the currency risks are priced in the Canadian equity market. The analysis presented in this paper is based on data collected from 2003 to 2010. As the dataset also includes the period of global financial crisis, we examine the issue of risk pricing in the full sample as well as in before and after global financial crisis periods. Unlike most existing studies, the empirical results presented in this paper are based on (i) the quasi maximum likelihood estimation (QMLE) based multivariate GARCH-in-Mean specification and (ii) the generalized method of moments (GMM) techniques. Our empirical analysis based on weekly data on 58 largest Canadian firms indicates that the currency as well as the local and the world market risks are priced in the Canadian equity market. This result holds for all exchange currency rates proxies and in all sample periods. We find that the price of the world market, the local market and the currency risks is time-varying and the Canadian equity market is partially segmented.

Keywords: Asset pricing; Equity market; Exchange rate risk pricing; Quasi maximum likelihood estimation (search for similar items in EconPapers)
JEL-codes: C26 F31 G1 G12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:30:y:2014:i:c:p:173-194

DOI: 10.1016/j.ribaf.2013.07.002

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