A capital asset pricing model (CAPM) that is based on international diversification of risk across different countries. It incorporates factors that could influence asset pricing in an international context. This implies that investors can hold not only local assets, but also a portfolio of globally diversified assets. The market portfolio can be constructed using assets from different countries and geographical areas. This model of CAPM take into account inflation, transaction costs, exchange rate risks, and barriers to foreign investment in expected return computation.
This model is also known as world CAPM or global CAPM.
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