A Test For A Multi-Risk Premia International Asset Pricing Model: An Arbitrage Pricing Theory Application

Abstract

IN this paper, the authors examine the existence of a multi-risk premia international asset pricing model using an Arbitrage Pricing Theory approach. An international asset pricing model is developed and tested using foreign exchange rate adjusted market indices for twenty-five countries’ stock markets for the period January 1964 to December 1980. The authors find evidence that indicates three risk premia exist for pricing mean returns on international assets. A model not adjusted for foreign exchange rate changes does not perform as well as an adjusted model.