Pricing Of The Currency Risk In Stock Markets: Evidence From Finland And Sweden 1970-2005
Source: Bank of Finland
In this paper, the authors investigate whether global, local and currency risks are priced in two Nordic stock markets using conditional international asset pricing models. They take the view of US investors. The estimation is conducted using a modified version of the multivariate GARCH framework of De Santis and Gérard (1998). For a sample period from 1970 to 2005, they find the world risk to be time-varying. While local risk is not priced for the USA, the local component is significant and time-varying for Finland and Sweden. Currency risk is also priced in the Finnish and Swedish markets, but is not time-varying using the De Santis and Gérard specification.