Tests of international asset pricing model with and without a riskless asset

This paper investigates the unconditional mean-variance efficiency of the Morgan Stanley Capital International (MSCI) world index in the context of the Sharpe- Lintner CAPM where there exists a universal riskless asset and the Black's zero-beta CAPM in the absence of a riskless asset. Using data from 16 OECD countries and Hong Kong over the period from 1980 to 1997, various tests under alternative distributional specifications are performed. The results show that overall the mean-variance efficiency of the MSCI world index cannot be rejected, regardless of the existence of the riskless asset.