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An International Market Model of Security Price Behavior

Published online by Cambridge University Press:  19 October 2009

Bruno H. Solnik
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Extract

The Markowitz-Sharpe market model has been extensively applied to the study of price behavior of American common stocks. In this paper an international market model will be used assuming that the return on any security is a linear function of the return on the world market portfolio. A justification for this approach lies in the International Asset Pricing Model (IAPM) proposed by Solnik [14] and [15]. This market model is by no means the only stochastic process of security returns consistent with the IAPM, but it is the most simple and straightforward extension of the traditional approach to domestic markets.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 4 , September 1974 , pp. 537 - 554
Copyright
Copyright © School of Business Administration, University of Washington 1974

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References

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