The Journal of Finance

Tests of the CAPM with Time‐Varying Covariances: A Multivariate GARCH Approach

Published: 09/01/1991   |   DOI: 10.1111/j.1540-6261.1991.tb04628.x

LILIAN NG

This paper examines an asset pricing model in which the Sharpe‐Lintner CAPM and the zero‐beta CAPM are special cases. The model allows the ratio of expected market risk premium to market variance, the conditional expected excess returns, and the risks to change over time. The results are found to be sensitive to the choice of the portfolio formation techniques. Significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward‐to‐risk ratio.

The Foreign Exchange Exposure of Japanese Multinational Corporations

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.295575

Jia He, Lilian K. Ng

We find that about 25 percent of our sample of 171 Japanese multinationals' stock returns experienced economically significant positive exposure effects for the period January 1979 to December 1993. The extent to which a firm is exposed to exchange‐rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs. Highly leveraged firms, or firms with low liquidity, tend to have smaller exposures. Foreign exposure is found to increase with firm size. We also find that keiretsu multinationals are more exposed to exchange‐rate risk than nonkeiretsu firms.

Stock Price Dynamics and Firm Size: An Empirical investigation

Published: 12/01/1992   |   DOI: 10.1111/j.1540-6261.1992.tb04693.x

YIN‐WONG CHEUNG, LILIAN K. NG

We show that after controlling for the effects of bid‐ask spreads and trading volume the conditional future volatility of equity returns is negatively related to the level of stock price. This “leverage effect” is stronger for small, as compared to large, firms. We also document that while the essential characteristics of the relations between stock price dynamics and firm size are stable, the strengths of the relationships appear to change over time.

What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide

Published: 05/03/2005   |   DOI: 10.1111/j.1540-6261.2005.768_1.x

KALOK CHAN, VICENTIU COVRIG, LILIAN NG

We examine how mutual funds from 26 developed and developing countries allocate their investment between domestic and foreign equity markets and what factors determine their asset allocations worldwide. We find robust evidence that these funds, in aggregate, allocate a disproportionately larger fraction of investment to domestic stocks. Results indicate that the stock market development and familiarity variables have significant, but asymmetric, effects on the domestic bias (domestic investors overweighting the local markets) and foreign bias (foreign investors under or overweighting the overseas markets), and that economic development, capital controls, and withholding tax variables have significant effects only on the foreign bias.

Tests of the Relations Among Marketwide Factors, Firm‐Specific Variables, and Stock Returns Using a Conditional Asset Pricing Model

Published: 12/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb05230.x

JIA HE, RAYMOND KAN, LILIAN NG, CHU ZHANG

In this article we generalize Harvey's (1989) empirical specification of conditional asset pricing models to allow for both time‐varying covariances between stock returns and marketwide factors and time‐varying reward‐to‐covariabilities. The model is then applied to examine the effects of firm size and book‐to‐market equity ratios. We find that the traditional asset pricing model with commonly used factors can only explain a small portion of the stock returns predicted by firm size and book‐to‐market equity ratios. The results indicate that allowing time‐varying covariances and time‐varying reward‐to‐covariabilities does little to salvage the traditional asset pricing models.