The proposed thesis comprises two essays on international investment. Each essay proposes a new theory and provides empirical evidence. The first essay develops a three-moment international asset-pricing model (TM-IAPM) under full integration and deviations from purchasing power parity (PPP) that prices coskewness. The model also embeds the standard IAPMs as special cases when explicit restrictions are imposed. We further apply the model to investigate the time-series behavior of market, size, value, and momentum premiums in the United States, Japan, and the United Kingdom equity markets. We find that the model explains most of the variation of these premiums during the 1980s and 1990s and that the coskewness risk is more important than covariance risk. We also find that the model performs well out-of-sample. The direct implication of our result is that linear IAPMs are misspecified and that investors should use nonlinear models to price international assets. The second essay proposes a way to disentangle the test of market efficiency from the test of the postulated equilibrium model. Indeed, the efficient market hypothesis, which stipulates that prices fully reflect available information, is one of the most important building blocks in finance and economics. Unfortunately, there is no consensus on this important issue since the methodologies used to test market efficiency are subject to the well-established joint-hypothesis problem. We derive three propositions that build on the well-known Sharpe ratios with the specific aim to split the test from the joint-hypothesis into two separate tests. We apply the new approach to examine the efficiency of the United States, Japan, and the United Kingdom markets over the period 1981-2000. Our results suggest that the rejection of the efficient market hypothesis may be premature. We thoroughly discuss the bias underlying the traditional approaches and propose a way to solve the problems.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:QMM.102181 |
| Date | January 2006 |
| Creators | Sy, Oumar. |
| Publisher | McGill University |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Format | application/pdf |
| Coverage | Doctor of Philosophy (Faculty of Management.) |
| Rights | © Oumar Sy, 2006 |
| Relation | alephsysno: 002479269, proquestno: AAINR25263, Theses scanned by UMI/ProQuest. |
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