An impact of international risk factors on the determination of the insurance industry capital asset pricing: An implication of the APT

The major purpose of this research is to apply the Arbitrage Pricing Theory in an international setting as an investment performance measurement benchmark to test its validity. Specifically, we use the International APT (IAPT) to test the sensitivity of foreign exchange rate risk. The supplement objective of our research is to sort out the set of common factors that affect pricing of the multinational insurance firms\u27 stock and to investigate their predictability.^ Our empirical evidence points to four conclusions. First, the premium associated with the foreign exchange exposure is found to be statistically significant and cannot be diversified. The results showed the consistence across countries. Second, in some countries, such as the U.S., Germany, and the U.K., the long-term interest rate is a very important factor influencing insurance asset pricing; the extension of this research is recommended. Third, the validity of the IAPT in the international setting is supported by our empirical results. Fourth, our results showed that the integration of international insurance securities markets could not be supported and that boundary barriers among the different countries\u27 insurance securities markets exist. The APT cannot be applied in this heterogeneous securities market.