The World Price of Foreign Exchange Risk

Bernard Dumas (bernard.dumas@insead.edu) and Bruno Solnik

No 4459, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We consider a world capital market in which the investor population is heterogenous. Investors of different countries differ in the prices of goods at which they consume the income from their investments. In such a setting, the international CAPM incorporates rewards for exchange rate risk, in addition to the traditional reward for market-covariance risk. The aim of the paper is to determine whether these additional risk premia empirically playa significant role in the pricing of securities. The test being conducted is a test of a conditional version of the CAPM. It builds on the recent empirical literature which points out that stock market returns may, to some extent, be predicted on the basis of a number of instrumental variables, such as interest rates and dividend yields. All previous tests of the international CAPM with exchange risk premia have been tests of the unconditional version and have been inconclusive.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 1993-09
Note: AP IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as BERNARD DUMAS & BRUNO SOLNIK, 1995. "The World Price of Foreign Exchange Risk," The Journal of Finance, vol 50(2), pages 445-479.

Downloads: (external link)
http://www.nber.org/papers/w4459.pdf (application/pdf)

Related works:
Journal Article: The World Price of Foreign Exchange Risk (1995)
Working Paper: The World Price of Foreign Exchange Risk (1994)
Working Paper: The world price of foreign exchange risk (1994)
Working Paper: The World Price of Foreign Exchange Risk (1993)
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:nbr:nberwo:4459

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w4459

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).