The time variation of risk and return in the foreign exchange and stock markets

Article Abstract:

This paper attempts to determine whether the fluctuations of conditional first and second moments - which are observed for many assets - are consistent with the Sharpe-Linter-Mossin capital asset pricing model. We test the mean-variance model under several different assumptions about the time variation of conditional second moments of returns, using weekly data from July 1974 to December 1986, that include returns on a portfolio composed of dollar, Deutsche mark, sterling, and Swiss franc assets, together with the U.S. stock market. The results indicate that estimated conditional variances cannot explain the observed time variation of risk premia. (Reprinted by permission of the publisher.)

Capital assets pricing model, Capital asset pricing model, Foreign exchange market

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Global stock markets in the twentieth century

Article Abstract:

Long-term estimates of expected return on equities are typically derived from U.S. data only. There are reasons to suspect that these estimates are subject to survivorship, as the United States is arguably the most successful capitalist system in the world. We collect a database of capital appreciation indexes for 39 markets going back to the 1920s. For 1921 to 1996, U.S. equities had the highest real return of all countries, at 4.3 percent, versus a median of 0.8 percent for other countries. The high equity premium obtained for U.S. equities appears to be the exception rather than the rule. (Reprinted by permission of the publisher.)

Securities and Commodity Exchanges, Security and commodity exchanges, Securities Exchanges, United States, International aspects, Exchanges, Securities, International finance

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