International Arbitrage Pricing with Unrestricted Currency Factors

LIFE Working Paper No. 94-21

Posted: 2 Sep 1999

See all articles by Piet M. A. Eichholtz

Piet M. A. Eichholtz

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Ronald Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group; TiasNimbas Business School

Abstract

A further generalization of the international version of the Arbitrage Pricing Theory is presented in this paper. The traditional model of Solnik (1983) and the modification by Ikeda (1991) are extended in such a way that the factor structure of assets and exchange rates are numeraire independent from the viewpoint of every investor. The assumptions of the resulting model are considerably less strict with respect to exchange rate behavior than was the case in previous models. Our model explicitly takes into account risk premia in exchange rates

JEL Classification: F31

Suggested Citation

Eichholtz, Piet M. A. and Mahieu, Ronald J., International Arbitrage Pricing with Unrestricted Currency Factors. LIFE Working Paper No. 94-21. Available at SSRN: https://ssrn.com/abstract=6138

Piet M. A. Eichholtz (Contact Author)

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883648 (Phone)
+31 43 3258530 (Fax)

Ronald J. Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2430 (Phone)
+31 13 466 3280 (Fax)

HOME PAGE: http://center.uvt.nl/staff/mahieu/

TiasNimbas Business School ( email )

Warandelaan 2
Tilburg, North-Brabant 5071HS
Netherlands

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