A Test of International CAPM
25 Pages Posted: 28 Dec 2006 Last revised: 14 Aug 2010
Date Written: October 1986
We propose and implement a Wald test of the international capital asset pricing model. Ex post asset returns are regressed on asset supplies. CAPM requires that the matrix of coefficients from a regression of n rates of return on n asset supply shares be proportional to the covariance matrix of the residuals from those regressions. We test this restriction in the context of a model that aggregates all outside financial assets for each of ten countries. We do not find strong support for the restrictions of CAPM.
Suggested Citation: Suggested Citation