A Currency Index Global Capital Asset Pricing Model

O'Brien, Thomas J.; Dolde, Walter

doi:10.2139/ssrn.137360

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A Currency Index Global Capital Asset Pricing Model

23 Pages Posted: 19 Apr 2001

See all articles by Thomas J. O'Brien

Thomas J. O'Brien

University of Connecticut - Department of Finance

Walter Dolde

University of Connecticut - Department of Finance

Abstract

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

O'Brien, Thomas J. and Dolde, Walter, A Currency Index Global Capital Asset Pricing Model. Available at SSRN: https://ssrn.com/abstract=137360 or http://dx.doi.org/10.2139/ssrn.137360