search query: @author Sentana, E. / total: 3
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| Author: | Sentana, E. |
| Title: | Did the EMS reduce the cost of capital |
| Journal: | Economic Journal
2003 : OCT, VOL. 112:482, p. 786-809 |
| Index terms: | Capital investment Price theory Exchange rate mechanism European Union |
| Language: | eng |
| Abstract: | The author proposes a dynamic arbitrage pricing theory multi-factor model with time-varying volatility for currency, bond and stock returns for ten European countries over 1977-97. He exploits the cross-sectional dimension of the model to construct world portfolios, which when added to the original list of assets, allow us to develop simple consistent methods of estimation and testing. The results reject the implicit asset pricing restrictions, and suggest decreases in idiosyncratic exchange rate risk tend to lower the cost of capital, although the effect is small. The potential gains are assessed from increased stock market integration. |
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