INTERNATIONAL ASSET PRICING MODELS AND CURRENCY RISK : EVIDENCE FROM VIETNAM

EDWARD, CHUA YAU SHENG (2014) INTERNATIONAL ASSET PRICING MODELS AND CURRENCY RISK : EVIDENCE FROM VIETNAM. [Final Year Project Report] (Unpublished)

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Abstract

This study investigates international asset pricing and whether currency risk is priced in Vietnam's Ho Chi Minh stock market from August 2000 to February 2014. Three international capital asset pricing models (ICAPM) are constructed to examine the pricing of risks in Vietnam market. A tri-variate GARCH-In-Mean approach with BEKK parameterisation for conditional variance-covariance matrix is employed. Surprisingly, empirical findings reveal that no misspecifications are detected for all three models. Price of world and local risk is found to be significant in fully integrated and partially integrated model. However, with the inclusion of currency risk into partially segmented model, local risk turns insignificant. It should be noted that price of currency risk (4.725) constitutes a large part as compared to price world and local market risk (-0.307 & 0.014). In a nutshell, we can conclude that world market risk and currency risk are priced in Vietnam's market. However, constant price of risk might not be appropriate if the price of risk is time varying. Hence, further research should explore more using a time varying specification before a conclusion could be reach regarding price of risks in Vietnam market.

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