Premium
The World Price of Covariance Risk
Author(s) -
HARVEY CAMPBELL R.
Publication year - 1991
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1991.tb03747.x
Subject(s) - conditional variance , portfolio , econometrics , economics , covariance , portfolio optimization , market risk , financial economics , risk premium , spectral risk measure , conditional expectation , actuarial science , statistics , autoregressive conditional heteroskedasticity , mathematics , volatility (finance)
In a financially integrated global market, the conditionally expected return on a portfolio of securities from a particular country is determined by the country's world risk exposure. This paper measures the conditional risk of 17 countries. The reward per unit of risk is the world price of covariance risk. Although the tests provide evidence on the conditional mean variance efficiency of the benchmark portfolio, the results show that countries' risk exposures help explain differences in performance. Evidence is also presented which indicates that these risk exposures change through time and that the world price of covariance risk is not constant.