International Asset Pricing Models and Currency Risk: Evidence from Finland 1970-2004

Posted: 1 May 2005

See all articles by Jan Antell

Jan Antell

HANKEN School of Economics

Mika Vaihekoski

University of Turku, Turku School of Economics; University of Turku - Turku School of Economics

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 and Gérard (1998). 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.

Keywords: World asset pricing model, conditional, time-varying, price of market risk, local vs. global pricing, segmentation, foreign exchange risk, multivariate GARCH-M, Finland, USA, U.S. dollar

JEL Classification: F1, G1

Suggested Citation

Antell, Jan and Vaihekoski, Mika and Vaihekoski, Mika, International Asset Pricing Models and Currency Risk: Evidence from Finland 1970-2004. Journal of Banking and Finance, Vol. 31, No. 9, 2007, Available at SSRN: https://ssrn.com/abstract=709070 or http://dx.doi.org/10.2139/ssrn.709070

Jan Antell

HANKEN School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Mika Vaihekoski (Contact Author)

University of Turku - Turku School of Economics ( email )

Turku, 20014
Finland

HOME PAGE: http://users.utu.fi/moovai/

University of Turku, Turku School of Economics ( email )

Turku School of Economics
Dep. of Accounting and Finance
University of Turku, 20014
Finland
+358 2 33351 (Phone)

HOME PAGE: http://users.utu.fi/moovai/

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