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International FinanceA Survey$
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H. Kent Baker and Leigh A. Riddick

Print publication date: 2012

Print ISBN-13: 9780199754656

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199754656.001.0001

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Asset Pricing in an International Setting

Asset Pricing in an International Setting

(p.295) 14 Asset Pricing in an International Setting
International Finance


Oxford University Press

Several factors complicate the tasks of valuing assets in a portfolio and measuring their risk-adjusted performance in an international setting. Chief among these are currency and inflation effects that arise when investment returns must be translated into a currency other than that in which the return is paid. These complications affect both return and risk and, thus, value. This chapter provides a review of international asset pricing models and their risk-return structure, beginning with the basic international mean-variance model. The discussion then turns to the many mean-variance model extensions, including consumption-based models, models with higher-order statistical moments, and models using conditioning information. The chapter then reviews models based on arbitrage pricing principles or other multifactor approaches that differ from the mean-variance framework. The chapter concludes that more than one model type can be effective in an international setting, but that simplifications that detract from capturing international sources of risk should be avoided.

Keywords:   asset pricing, international asset pricing, international mean variance asset international pricing models, factor pricing models

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