International Asset Pricing with Alternative Distributional Specifications

34 Pages Posted: 31 Oct 2005

See all articles by Guofu Zhou

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Date Written: November 1992

Abstract

The unconditional mean-variance efficiency of the Morgan Stanley Capital International world equity index is investigated. Using data from 16 OECD countries and Hong Kong and maintaining the assumption of multivariate normality, we cannot reject the efficiency of the benchmark. However, residual diagnostics reveal significant departures from normality. We test the sensitivity of the results by specifying error structures that are t-distributed and mixtures of normal distributions. Even after relaxing the i.d.d. assumption, we cannot reject the mean-variance efficiency of the world portfolio. Our results suggest that differences in country risk exposure, measured against the MSCI world portfolio, will lead to differences in expected returns.

This is the final working paper version of our 1993 publication in the Journal of Empirical Finance.

Keywords: International asset pricing, CAPM, mean-variance efficiency, alternative distributions, mixtures of normals

JEL Classification: G15, G11, G12

Suggested Citation

Zhou, Guofu and Harvey, Campbell R., International Asset Pricing with Alternative Distributional Specifications (November 1992). Available at SSRN: https://ssrn.com/abstract=826624 or http://dx.doi.org/10.2139/ssrn.826624

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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