We perform maximum likelihood estimation of a model of international asset pricing based on CAI4. We test the restrictions imposed by CAB'l against a more general asset pricing model. The "betas" in our CA11 vary over time from two sources --the supplies of the assets (government obligations of France, Germany, Italy, Japan, the U.K. and the U.S.) change over time, and so do the conditional covariances of returns on these assets. We let the covariances change over time as a function of macroeconomic data. We also estimate the model when the covariances follow a multivariate ARCH process.
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Engel et al. (1987) studied this question.
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