International Asset Pricing Under Segmentation and PPP Deviations

49 Pages Posted: 16 Jun 2005  

Ines Chaieb

University of Geneva and Swiss Finance Institute; 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

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

Ines Chaieb (Contact Author)

University of Geneva and Swiss Finance Institute ( email )

Geneva Finance Research Institute
UniMail, 40 Bd Pont d'Arve
Geneva, CH - 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-4056 (Phone)
514-398-3876 (Fax)

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