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International Asset Pricing Model and Portfolio Diversification with Time Varying Risk: A Comparison of Developed and Emerging Markets

Author

Listed:
  • Genevieve Nouyrigat

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique)

  • Francisca M Beer

Abstract

The objective of the article is to test if the international diversification of portfolio with emerging market and developed market has a positive effect in their performance as recommended by the modern portfolio. For this, we develop and test a partially integrated international asset pricing model using an asymmetric multivariate GARCH specification for four developed markets (the U.S., the U.K., Japan and France) and three emerging markets (Taiwan, China, and South Africa) over the period 1982-2003. As for the cross-market analysis, we show that a conditional variance is higher after shocks large for the US, China, UK and Taiwan and conditional variance is higher after negative shocks for the US, South Africa and Japan. With the equity market integration hypothesis, we suggest that domestic risk is not a priced factor for the markets of Chine, UK and US, whereas the Taiwan stock market prices both domestic and world market risks.

Suggested Citation

  • Genevieve Nouyrigat & Francisca M Beer, 2005. "International Asset Pricing Model and Portfolio Diversification with Time Varying Risk: A Comparison of Developed and Emerging Markets," Post-Print hal-04537940, HAL.
    • Handle: RePEc:hal:journl:hal-04537940
    Note: View the original document on HAL open archive server: https://hal.science/hal-04537940v1
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    References listed on IDEAS

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    1. Gerard, Bruno & Thanyalakpark, Kessara & Batten, Jonathan A., 2003. "Are the East Asian markets integrated? Evidence from the ICAPM," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 585-607.
    2. AROURI Mohamed El Hedi, 2004. "The Impact of Increasing Stock Market Integration on Expected Gains from International Portfolio Diversification: Evidence from a Multivariate Approach with Time Varying Risk," Economics Bulletin, AccessEcon, vol. 6(3), pages 1-13.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International diversification of portfolio; emerging market; GARCH model. JEL Classification : F36 C32 G15; GARCH model. JEL Classification : F36; C32; G15;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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