Exposure To The World And Trading-bloc Risks: A Multiviariate Capital Asset Pricing Model

This paper employs a capital asset pricing model that incorporates both the world and trading factors to show that the recent trend of trade regionalism has led to segmentation of world stock markets. The model is developed within a multivariate GARCH framework. The conditional time-varying betas are derived to examine the dynamics of risk exposures to the world and trading-bloc factors. The results show risk exposure behavior that is not revealed using static risk estimates.