International Pricing Model Research Articles

Capital market integration: evidence from the G7 countries

This article examines whether the capital markets of the G7 countries are integrated. Capital market integration is examined under the joint hypothesis of an international multifactor asset pricing model. International factors are extracted from a world portfolio using both maximum likelihood analysis and principal component analysis. Results show that international common factors exist, some of which are priced and equal across some countries, however, the international pricing model does not hold for all G7 countries. The price of risk is not found to be the same across all countries and the hypothesis of full capital market integration is not supported.

Accounting measures and international pricing models: Justifying accounting homogeneity

We study the importance of homogeneous accounting data when testing international versions of asset pricing models. Specifically, we focus on a pricing model commonly used by practitioners – the Fama–French three-factor model – which uses accounting information and has traditionally performed poorly at the cross-country level. We show that international versions of the model perform significantly better if the accounting information is homogeneous across firms. We apply the model to a set of firms that follow common accounting standards – the IAS/IFRS – and also to firms that have issued ADRs in the US – and therefore must report following both US GAAP and their own domestic standards. In both cases our results show that the accounting dimension is relevant: the use of homogeneous accounting measures allows for much higher goodness-of-fit of international versions of the three-factor model, at levels similar to those of domestic versions and superior to those of non-homogeneous versions. This suggests that further accounting homogeneity could lead to more accurate pricing and valuation of international assets and to an improvement of the efficiency of international fund allocation.

A integração entre as bolsas de valores de Buenos Aires e de São Paulo

Diversos trabalhos recentes apresentaram evidências sobre a existência de elos entre os mercados de ações da Argentina e do Brasil. Entretanto os elos não implicam que os mercados estejam integrados. A integração é conceito mais restrito, que tem que ser verificado através de modelos de apreçamento de ativos. A evidência empírica passada conclui pela segmentação desses doismercados mas o processo de abertura dos mercados emergentes é recente. É bem possível que testes de integração mais antigos sobre períodos longos no tempo não reflitam a situação corrente. Nós testamos dois modelos de apreçamento de ativos para os mercados de ações na Argentina e no Brasil. Nossos resultados sugerem que a Argentina continua segmentada dos grandes mercados internacionais. Por outro lado, a Argentina parece ter-se integrado com o Brasil nos últimos três anos. Cerca de 40% das exportações argentinas vêm para o Brasil. O Brasil é muito importante para a Argentina e domina os outros mercados no apreçamento do mercado de ações argentino. Já o Brasil apresenta integração com os grandes mercados financeiros internacionais e com a Argentina. Apenas 9% das exportações brasileiras vão para a Argentina. Os Estados Unidos tornaram-se particularmente importantes no apreçamento do mercado brasileiro nos últimos anos. Os Estados Unidos são o maior parceiro comercial do Brasil e o mercado favorito para emissões de DRs brasileiros.

Capital Budgeting for Multinational Firms: A Theoretical Analysis

The capital asset pricing model of Sharpe [21], Lintner [13] and Mossin [16] has been successfully extended by Rubinstein [18], Fama and Miller [8] and others to the area of corporate investment decisions. To the extent that the SLM model is a reasonable representation of how assets are priced in the domestic market, the model can serve as a sound theoretical decision criterion for U.S. firms investing in the U.S. market. For a multinational firm, however, the SLM model cannot be used as an investment criterion. This is true whether the international capital market is assumed to be segmented or integrated. Some researchers such as Black [4], Grubel [10], Cohn and Pringle [7] and Subrahmanyam [25] argue for the segmented market hypothesis, but recent empirical work by Agmon [3], Hughes et al. [11], Solnik [23], Stehle [24] and Chen et al. [6] provide some evidence that the international capital market is sufficiently integrated and efficient to provide for an international pricing of risk. Several international pricing models have been advanced, most notably those of Solnik [22], Adler and Dumas [2], Senbet and Chen [19] and most recently, Mehra [15]. While it is not the purpose of the present paper to debate the merits of these competing models, it is necessary, however, that one model be selected for the proceeding analysis. Due to the somewhat restrictive assumptions used by Solnik [22] and Adler and Dumas [2], the models of Senbet and Chen [19] and Mehra [15] shall be used in this paper. The latter two models are international equilibrium pricing models which explicitly incorporate the exchange risk factor.