Tests of CAPM on an International Portfolio of Bonds and Stocks

Charles Engel

No 4598, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper estimates and tests an international version of the Capital Asset Pricing Model. Investors from the U.S., Germany and Japan choose a portfolio that includes bonds and equities from each of these countries to maximize a function of the mean and variance of returns. Investors in each country evaluate returns in terms of their home currency. The CAPM does have some power in explaining ex ante returns. It predicts fairly large risk premia on the equities, but small ones on bonds. The model is rejected, however, when tested against a more general alternative that allows for more investor heterogeneity than the CAPM.

JEL-codes: F3 (search for similar items in EconPapers)
Date: 1993-12
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as The Internationalization of Equity Markets, Jeffrey A. Frankel, ed., pp. 149-172, (Chicago: University of Chicago Press: 1994).
Published as Tests of CAPM on an International Portfolio of Bonds and Stocks , Charles M. Engel. in The Internationalization of Equity Markets , Frankel. 1994

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