The International CAPM and a Wavelet-Based Decomposition of Value at Risk

Viviana Fernandez

NBER Working Paper No. 12233
Issued in May 2006
NBER Program(s):Asset Pricing

In this article, we formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, we derive an analytical formula for time-scale value at risk and marginal value at risk (VaR) of a portfolio. We apply our methodology to stock indices of seven emerging economies belonging to Latin America and Asia, for the sample period 1990-2004. Our main conclusions are the following. First, the estimation results hinge upon the choice of the world market portfolio. In particular, the stock markets of the sampled countries appear to be more integrated with other emerging countries than with developed ones. Second, value at risk depends on the investor's time horizon. In the short run, potential losses are greater than in the long run. Third, additional exposure to some specific stock indices will increase value at risk to a greater extent, depending on the investment horizon. Our results go in line with recent research in asset pricing that stresses the importance of heterogeneous investors.

download in pdf format
   (1001 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12233

Published: Fernandez Viviana P, 2005. "The International CAPM and a Wavelet-Based Decomposition of Value at Risk," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-37, December. citation courtesy of

Users who downloaded this paper also downloaded* these:
Engel and Rodrigues w2054 A Test of International CAPM
Engle and Manganelli w7341 CAViaR: Conditional Value at Risk by Quantile Regression
Da, Guo, and Jagannathan w14889 CAPM for Estimating the Cost of Equity Capital: Interpreting the Empirical Evidence
Engel w4598 Tests of CAPM on an International Portfolio of Bonds and Stocks
Dumas w4657 A Test of the International CAPM Using Business Cycles Indicators as Instrumental Variables
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us