International asset returns and exchange rates

Li, Yuming and Zhong, Maosen (2009) International asset returns and exchange rates. European Journal of Finance, 15 3: 263-285. doi:10.1080/13518470802423429

Author Li, Yuming
Zhong, Maosen
Title International asset returns and exchange rates
Journal name European Journal of Finance   Check publisher's open access policy
ISSN 1351-847X
Publication date 2009-04
Sub-type Article (original research)
DOI 10.1080/13518470802423429
Volume 15
Issue 3
Start page 263
End page 285
Total pages 23
Place of publication Abingdon, Oxon, United Kingdom
Publisher Routledge
Language eng
Abstract We present a consumption-based international asset-pricing model to study global equity premiums, the US riskfree rate and the cross section of international asset returns. The model entails idiosyncratic, country-specific consumption risk, which helps explain the magnitude of global equity premiums. It also features country-specific habit formation, which helps explain the level of the interest rate on the US short-term Treasury bills traded by domestic and international investors. We find that the model explains approximately 40-50% of the cross section of currency and equity premiums as well as expected returns from value and growth portfolios of at least a dozen countries. Changes in real exchange rates are responsible for explaining approximately half of the cross section of international asset returns.
Keyword International asset pricing
Consumption-based model
Habit formation
Idiosyncratic risks
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 3 times in Thomson Reuters Web of Science Article | Citations
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Created: Thu, 03 Sep 2009, 08:27:26 EST by Mr Andrew Martlew on behalf of UQ Business School