Inflation Risk, Exchange Rate Risk, And Asset Returns: Evidence From Korea, Malaysia, And Taiwan

In this paper we investigate whether inflationand currency risks are priced in the Korean, Malaysian and Taiwan stock marketusing conditional international asset pricing models. We take the view of a USinvestor. The estimation is conducted using a modified version of themultivariate GARCH framework of De Santis and Grard (1998). We use a sampleperiod from 1988 to 2009. The results show that the world market risk is pricedon Korean, Malaysian, Taiwan and US stock markets. We find the currency and inflationrisk to be also priced on Korean, Malaysian and Taiwan market.

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Inflation Risk, Exchange Rate Risk and Asset Returns: Evidence from Korea, Malaysia and Taiwan

SSRN Electronic Journal ◽

10.2139/ssrn.1663426 ◽

2010 ◽

Author(s):

Kashif Saleem

Keyword(s):

Exchange Rate ◽

Asset Returns ◽

Exchange Rate Risk ◽

Inflation Risk ◽

Rate Risk

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Linear Beta Pricing with Inefficient Benchmarks

Quarterly Journal of Finance ◽

10.1142/s2010139213500043 ◽

2013 ◽

Vol 03 (01) ◽

pp. 1350004 ◽

Cited By ~ 4

Author(s):

George Diacogiannis ◽

David Feldman

Keyword(s):

Asset Pricing ◽

Market Risk ◽

Expected Returns ◽

Pricing Model ◽

Pricing Models ◽

Expected Return ◽

Risk Premiums ◽

Asset Pricing Models ◽

Current Asset ◽

Mean Variance

Current asset pricing models require mean-variance efficient benchmarks, which are generally unavailable because of partial securitization and free float restrictions. We provide a pricing model that uses inefficient benchmarks, a two-beta model, one induced by the benchmark and one adjusting for its inefficiency. While efficient benchmarks induce zero-beta portfolios of the same expected return, any inefficient benchmark induces infinitely many zero-beta portfolios at all expected returns. These make market risk premiums empirically unidentifiable and explain empirically found dead betas and negative market risk premiums. We characterize other misspecifications that arise when using inefficient benchmarks with models that require efficient ones. We provide a space geometry description and analysis of the specifications and misspecifications. We enhance Roll (1980), Roll and Ross's (1994), and Kandel and Stambaugh's (1995) results by offering a "Two Fund Theorem," and by showing the existence of strict theoretical "zero relations" everywhere inside the portfolio frontier.

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Diagnosing Asset Pricing Models Using the Distribution of Asset Returns

The Journal of Finance ◽

10.1111/j.1540-6261.1991.tb03773.x ◽

1991 ◽

Vol 46 (3) ◽

pp. 955-983 ◽

Cited By ~ 39

Author(s):

KARL N. SNOW

Keyword(s):

Asset Pricing ◽

Asset Returns ◽

Pricing Models ◽

Asset Pricing Models

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Testing International Asset Pricing Models Using Implied Costs of Capital

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109009090164 ◽

2009 ◽

Vol 44 (2) ◽

pp. 307-335 ◽

Cited By ~ 104

Author(s):

Charles Lee ◽

David Ng ◽

Bhaskaran Swaminathan

Keyword(s):

Asset Pricing ◽

World Market ◽

Idiosyncratic Volatility ◽

Expected Returns ◽

International Asset Pricing ◽

Pricing Models ◽

Firm Level ◽

Economic Relations ◽

Asset Pricing Models ◽

Market Beta

AbstractThis paper tests international asset pricing models using firm-level expected returns estimated from an implied cost of capital approach. We show that the implied approach provides clear evidence of economic relations that would otherwise be obscured by the noise in realized returns. Among G-7 countries, expected returns based on implied costs of capital have less than one-tenth the volatility of those based on realized returns. Our tests show that firm-level expected returns increase with world market beta, idiosyncratic volatility, financial leverage, and book-to-market ratios, and decrease with currency beta and firm size.

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