International Asset Pricing and Portfolio Diversification with Time-Varying Risk

Posted: 6 Mar 1998

See all articles by Giorgio De Santis

Giorgio De Santis

Goldman Sachs Group, Inc. - Quantitative Strategy Group

Bruno Gerard

BI Norwegian Business School - Department of Finance

Abstract

We test the conditional CAPM for the world's eight largest equity markets using a parsimonious GARCH parameterization. Our methodology can be applied simultaneously to many assets and, at the same time, accommodate general dynamics of the conditional moments. The evidence supports most of the pricing restrictions of the model, but some of the variation in risk-adjusted excess returns remains predictable during periods of high interest rates. Our estimates indicate that, although severe market declines are contagious, the expected gains from international diversification for a U.S. investor average 2.11% per year and have not significantly declined over the last two decades.

JEL Classification: G12, G15

Suggested Citation

De Santis, Giorgio and Gerard, Bruno, International Asset Pricing and Portfolio Diversification with Time-Varying Risk. Journal of Finance, Vol. 52, No. 4, December 1997. Available at SSRN: https://ssrn.com/abstract=64947

Giorgio De Santis (Contact Author)

Goldman Sachs Group, Inc. - Quantitative Strategy Group ( email )

32 Old Slip, 24th Floor
New York, NY 10005
United States

Bruno Gerard

BI Norwegian Business School - Department of Finance ( email )

Nydalsveien 37
Oslo, N-0484
Norway
+4746410506 (Phone)

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