In addition to the assumptions of the traditional capital asset pricing model, which of conditions a) through c) are necessary for the international asset pricing model to hold?
A) investors have identical consumption baskets
B) investors only care about returns in their functional currency
C) purchasing power parity holds
D) More than one of the above
E) None of the above

Question

Quizplus · Accepted Answer

In addition to the assumptions of the traditional capital asset pricing model, both purchasing power parity holding and investors having identical consumption baskets are necessary for the international asset pricing model to hold. However, investors may not only care about returns in their functional currency, so option B is not necessary.

In Addition to the Assumptions of the Traditional Capital Asset