Asset Pricing in the International Economy

February 1, 1993

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Format: Chicago

José M. Barrionuevo Asset Pricing in the International Economy, (USA: International Monetary Fund, 1993) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a statistical and economic interpretation of the low and often economically implausible risk aversion estimates obtained for fixed income assets throughout the finance literature. For a statistical interpretation, Monte Carlo simulations are used to demonstrate that specification errors introduce a serious downward bias in parameter estimates derived from the standard asset pricing model. For an economic interpretation, an international version of the asset pricing model is presented. The model suggests that by reducing the effect of country specific disturbances, an international measure of consumption growth yields more accurate risk aversion estimates than a national measure. The results of asset pricing tests suggest that risk aversion estimates derived from models constructed for the international measures are economically plausible and close to each other across eight industrialized economies. These results are robust for several asset returns.

Subject: Asset prices, Consumption, Econometric analysis, Estimation techniques, Financial institutions, National accounts, Prices, Return on investment, Treasury bills and bonds

Keywords: Asset prices, Asset pricing estimation, Consumption, Consumption growth, Estimation procedure, Estimation techniques, Growth measure, Growth model, Least squares, Return on investment, Risk aversion, Risk premium, Treasury bills and bonds, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1993/015
Stock No:

WPIEA0151993
ISBN:

9781451843187
ISSN:

1018-5941

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