Global macroeconomic shocks, time-varying covariances and tests of the international CAPM
Andrew Clare,
Raymond O'Brien,
Peter Smith and
Stephen Thomas
Applied Economics Letters, 1996, vol. 3, issue 2, 109-113
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.
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:3:y:1996:i:2:p:109-113
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DOI: 10.1080/135048596356816
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