A1 Refereed original research article in a scientific journal
International asset pricing models and currency risk: Evidence from Finland 1970-2004
Authors: Antell J, Vaihekoski M
Publisher: ELSEVIER SCIENCE BV
Publication year: 2007
Journal: Journal of Banking and Finance
Journal name in source: JOURNAL OF BANKING & FINANCE
Journal acronym: J BANK FINANC
Volume: 31
Issue: 9
First page : 2571
Last page: 2590
Number of pages: 20
ISSN: 0378-4266
DOI: https://doi.org/10.1016/j.jbankfin.2006.09.013(external)
Abstract
In this paper we investigate whether global, local and currency risks are priced in the Finnish stock market using conditional international asset pricing models. We take the view of a US investor. The estimation is conducted using a modified version of the multivariate GARCH framework of [De Santis, G., Gerard, B., 1998. How big is the premium for currency risk? Journal of Financial Economics 49, 375-412]. 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 Gerard specification. This suggests that the linear specification for the currency risk may not be adequate for non-free floating currencies. (c) 2007 Elsevier B.V. All rights reserved.
In this paper we investigate whether global, local and currency risks are priced in the Finnish stock market using conditional international asset pricing models. We take the view of a US investor. The estimation is conducted using a modified version of the multivariate GARCH framework of [De Santis, G., Gerard, B., 1998. How big is the premium for currency risk? Journal of Financial Economics 49, 375-412]. 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 Gerard specification. This suggests that the linear specification for the currency risk may not be adequate for non-free floating currencies. (c) 2007 Elsevier B.V. All rights reserved.
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