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Time variation and asymmetry in the world price of covariance risk: The implications for international diversification. University of Melbourne Discussion Paper 907

By Ólan T. Henry, Nilss Olekalns and Kalvinder K. Shields


The International Capital Asset Pricing Model measures country risk in terms of the conditional covariance of national returns with the world return. Using impulse responses from a multivariate nonlinear model we provide evidence of time variation and asymmetry in the measure of country risk. and the implied benefit to international diversification. The evidence implies that the price of risk and the benefits from diversification may differ in a statistically and economically meaningful fashion across bull and bear markets

Topics: Generalised Impulse Responses, Asymmetry, International Capital Asset Pricing Model. J.E.L. Reference Numbers, F300, G150
Year: 2004
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