International Asset Pricing Models and Currency Risk

Project: Externally funded project

Project Details

Description

In this project we investigate whether global, local and currency risks are priced factors in conditional asset pricing models. We take the view of a US investor who invests internationally, perhaps into small segmented markets emerging to become larger and to having a tighter linkage to international markets. The estimation is conducted using modified versions of the multivariate GARCH framework of De Santis and Gérard (1998). In the first paper, "International asset pricing models and currency risk: Evidence from Finland 1970–2004", published in the Journal of Banking and Finance (2007, Vol. 31, No. 9) we use data from one small stock market, namely Finland. For a sample period from 1970 to 2004, we find the world risk to be time-varying. While local risk is not priced for the USA, the local component is significant and time-varying for Finland. Currency risk is priced in the Finnish market, but is not time-varying using the De Santis and Gérard specification. This suggests that the linear specification for the currency risk may not be adequate for non-free floating currencies. Another article, "Pricing Currency Risk in the Stock Market: Evidence from Finland and Sweden 1970-2009", has been submitted to a scientific journal. Here one stock market is added, a country similar to Finland, having yet taken a different road for example within the EMU. The primary interest in this paper is related to currencies and different currency regimes. The first paper is completed. Also the second is almost done. The project is planned to continue with at least one additional paper, where we plan to further elaborate whether the markets have developed from segmented to integrated, and the degree to which this development has evolved.
StatusFinished
Effective start/end date01.12.200431.12.2010

Research Output

International asset pricing models and currency risk: Evidence from Finland 1970-2004

Antell, J. & Vaihekoski, M., 2007, In : Journal of Banking & Finance. 31, 9, p. 2571-2590 20 p.

Research output: Contribution to journalArticleScientificpeer-review

17 Citations (Scopus)