... important role in the success of an international CAPM. In other words, we are testing validity of Purchasing Power Parity in the international stock market. Our paper is then structured as follows. In the next section, background theory and relevant literatures are briefly discussed. Specification, methodologies and variable definitions are then presented in section 3. Section 4 is the description of the data and analysis of their potential problems. In section 5, we carry out all the statistical tests for our preliminary hypotheses. Finally, section 6 includes conclusions and implications of our results; suggestions for further research are also put in this section.1 2. Back ground theory The CAPM lays most of its groundwork on Markowitz mean-variance efficient problem (1959) which figures out an optimal (in terms of lowest risk) portfolio for investors in corresponding to their desired rate of returns. The original CAPM was officially developed by the works of Sharp(1964) ...

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