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Discussion Paper
Time-varying risk and international portfolio diversification with contagious bear markets
In this paper we estimate and test a conditional version of the international CAPM. By using a parsimonious parameterization recently proposed by Ding and Engle (1994), we allow risk premia, betas, and correlations to very through time and test the cross-section restrictions of the model using a relatively large number of assets. One advantage of our test is that it does not require the market weights to be observed in each period. In support of the international CAPM, we find that world-wide risk is priced whereas country-specific risk is not. Further, we find that the price of world risk is ...