Economics, Econometrics and Finance
4 years ago

New model fails to outperform standard CAPM in predicting stock returns.

RePEc: Research Papers in Economics
The International CAPM When Expected Returns Are Time-Varying
David T. Ng

Paper Summary

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The article presents a new version of the international CAPM model that includes factors like exchange-rate risk and intertemporal hedging. These factors are found to be related to market portfolio covariances but do not improve the model's performance compared to the standard CAPM. The model is tested on stock market returns in the US, Japan, Germany, and the UK, showing mixed results. Factors like exchange rates and intertemporal hedging do not help predict returns on high book-to-market stock portfolios across countries.