TY  - JOUR
AU  - Dumas,Bernard
AU  - Solnik,Bruno
TI  - The World Price of Foreign Exchange Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4459
PY  - 1993
Y2  - September 1993
UR  - http://www.nber.org/papers/w4459
L1  - http://www.nber.org/papers/w4459.pdf
N1  - Author contact info:
Bernard Dumas
INSEAD
boulevard de Constance
77305 Fontainebleau Cedex
FRANCE
Tel: +33 1 60 72 43 73
Fax:  +33 1 60 72 40 50
E-Mail: bernard.dumas@insead.edu
AB  - We consider a world capital market in which the investor population is heterogenous. Investors of different countries differ in the prices of goods at which they consume the income from their investments. In such a setting, the international CAPM incorporates rewards for exchange rate risk, in addition to the traditional reward for market-covariance risk. The aim of the paper is to determine whether these additional risk premia empirically playa significant role in the pricing of securities. The test being conducted is a test of a conditional version of the CAPM. It builds on the recent empirical literature which points out that stock market returns may, to some extent, be predicted on the basis of a number of instrumental variables, such as interest rates and dividend yields. All previous tests of the international CAPM with exchange risk premia have been tests of the unconditional version and have been inconclusive.
ER  -