International asset pricing with alternative distributional specifications

Campbell Harvey and Guofu Zhou

No 277, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: The unconditional mean-variance efficiency of the Morgan Stanley Capital International world equity index is investigated. Using data from 16 OECD countries and Hong Kong and maintaining the assumption of multivariate normality, we cannot reject the efficiency of the benchmark. However, residual diagnostics reveal significant departures from normality. We test the sensitivity of the results by specifying error structures that ¡¤are t-distributed and mixtures of normal distributions. Even after relaxing the i.i.d. assumption, we cannot reject the mean-variance efficiency of the world portfolio. Our results suggest that differences in country risk exposure, measured against the MSCI world portfolio, will lead to differences in expected returns.

Pages: 25 pages
Date: 1993
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Citations: View citations in EconPapers (56)

Published in Journal of Empirical Finance, Volume 1, Issue 1, June 1993, Pages 107¨C131

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