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Did the EMS Reduce the Cost of Capital

Bibliographic Data

ID9718764
AuthorsEnrique Sentana (0000-0003-2328-909X, CEMFI, Madrid, corresponding author)
Year2002
Volume112
Issue482
Pages786-809
Publication date2002-10-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/1468-0297.00069
OpenAlexW2123342933
LanguageEN
Citations received3
References cited20

We propose a dynamic APT multi-factor model with time-varying volatility for currency, bond and stock returns for ten European countries over the period 1977-1997. We exploit the cross-sectional dimension of the model to construct world portfolios, which, when added to the original list of assets, allow us to develop simple consistent methods of estimation and testing. Our results reject the implicit asset pricing restrictions, and suggest that decreases in idiosyncratic exchange rate risk tend to lower the cost of capital, although the effect is small. Finally, we assess the potential gains from increased stock market integration

Bond · Capital asset pricing model · Cost of capital · Currency · Econometrics · Economics · Exchange rate · Exploit · Financial economics · Microeconomics · Monetary economics · Stock (firearms · Volatility (finance · Computer Science · Engineering · Finance · Financial Markets and Investment Strategies · Financial Risk and Volatility Modeling · Monetary Policy and Economic Impact

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Unique citing works3
Citations per year0,16
Citation span2007 - 2015 (9)
Citation velocityhistorical
Highly citedNo
Citation typesNeutral: 3

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