A Currency Index Global Capital Asset Pricing Model
23 Pages Posted: 19 Apr 2001
A two-factor Global Capital Asset Pricing Model, where the factors are the global market portfolio and a currency index, is described and illustrated. The model is consistent with the empirical evidence of a priced currency index factor by Ferson and Harvey [1993, 1994]. The model and illustration help demonstrate a problem with the common practice of adjusting an asset's expected rate of return across currencies via nominal riskless interest rate differentials.
Keywords: International, Asset, Pricing
JEL Classification: G15
Suggested Citation: Suggested Citation