International Asset Pricing Under Segmentation and PPP Deviations

Chaieb, Ines; Errunza, Vihang R.

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International Asset Pricing Under Segmentation and PPP Deviations

EFA 2005 Moscow Meetings Paper

Journal of Financial Economics, Forthcoming

49 Pages Posted: 16 Jun 2005

See all articles by Ines Chaieb

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Abstract

We analyze the impact of both Purchasing Power Parity (PPP) deviations and market segmentation on asset pricing and investor's portfolio holdings. The freely traded securities command a world market risk premium and an inflation risk premium. The securities that can be held by only a subset of investors command two additional premiums: a conditional market risk premium and a segflation risk premium. Our model is empirically supported with important implications for tests of international asset pricing.

Keywords: International asset pricing models, currency risk, segmentation

JEL Classification: G11, G12, G15, F31

Suggested Citation: Suggested Citation

Chaieb, Ines and Errunza, Vihang R., International Asset Pricing Under Segmentation and PPP Deviations. EFA 2005 Moscow Meetings Paper, Journal of Financial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=677162