For the international capital asset pricing model (ICAPM), which of the following is TRUE regarding the integration of national markets? If international markets are:
A) |
segmented, the ICAPM breaks down. | |
B) |
integrated, there is no need for the ICAPM. | |
C) |
integrated, the ICAPM breaks down. | |
For the ICAPM to be valid, international markets must be integrated. If markets are segmented, risk will be priced differently in different national markets so the world risk premium will not be a robust comparison measure. |