Global Financial Markets and the Risk Premium on U.S. Equity

42 Pages Posted: 13 Aug 2001 Last revised: 23 Aug 2010

See all articles by K.C. Chan

K.C. Chan

Hong Kong University of Science & Technology (HKUST) - Department of Finance

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: May 1992

Abstract

We document that there is a significant foreign influence on the risk premium of U.S. assets. Using a bivariate GARCH-in-mean process for conditional expected excess returns, we find that the conditional expected excess return on U.S. stocks is positively related to the conditional covariance of the return of these stocks with the return on a foreign index but is not related to its own conditional variance. Further, we are unable to reject the international version of the CAPM. Evidence is presented for different model specifications, multiple-day returns and alternative proxies of foreign stock returns including the Nikkei 225 Stock Average, Morgan Stanley Japan and Morgan Stanley EAFE indices.

Suggested Citation

Chan, Kakeung C. and Karolyi, George Andrew and Stulz, Rene M., Global Financial Markets and the Risk Premium on U.S. Equity (May 1992). NBER Working Paper No. w4074. Available at SSRN: https://ssrn.com/abstract=278756

Kakeung C. Chan (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358 7669 (Phone)
852-2358 1749 (Fax)

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

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