A Test of International CAPM
Charles Engel, Anthony P. Rodrigues
We propose and implement a Wald test of the international capital asset pricing model. Ex post asset returns are regressed on asset supplies. CAPM requires that the matrix of coefficients from a regression of n rates of return on n asset supply shares be proportional to the covariance matrix of the residuals from those regressions. We test this restriction in the context of a model that aggregates all outside financial assets for each of ten countries. We do not find strong support for the restrictions of CAPM.
Published: "Tests of Mean-Variance Efficiency of International Equity Markets" Oxford Economic Papers, vol 45, (July 1993) p. 403-421