Economic, Financial and Fundamental Global Risk in and Out of the Emu

Fuqua School of Business Working Paper No. 9901

52 Pages Posted: 28 Apr 1999  

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Multiple version iconThere are 2 versions of this paper

Date Written: February 1999

Abstract

We explore the different factors that drive expected returns in world markets. Our research offers two innovations. First, the introduction of the Euro currency unit greatly reduces the complexity of including foreign exchange risk in asset pricing models. We use a synthetic Euro excess return along with a Yen excess return to assess country equity sensitivities to currency risk factors. Second, when combining the currency factors with a group of economic factors, we measure the incremental information in the factor proposed in Fama and French (1998). We find that a global price-to-book factor offers little additional explanatory power over and above a model that includes economic risk factors.

JEL Classification: F3, G0, G1

Suggested Citation

Ferson, Wayne E. and Harvey, Campbell R., Economic, Financial and Fundamental Global Risk in and Out of the Emu (February 1999). Fuqua School of Business Working Paper No. 9901. Available at SSRN: https://ssrn.com/abstract=152889 or http://dx.doi.org/10.2139/ssrn.152889

Wayne E. Ferson

University of Southern California ( email )

Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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