It should not be surprising that in times of international monetary instability, there is renewed interest in the definition and analysis of exchange risk. CAPM is a two parameter, single period model focusing on the expected return of an asset and the asset s riskiness.
Risk is measured by the variance of the asset s rate of return over time measured by ex-post data.
This view was advanced by Grubel who pointed out that the models of portfolio balance developed by Markowitz and Tobin explain the real world phenomenon of diversified asset holdings elegantly and properly. However, their analysis has not yet been applied explicitly to the explanation of long-term asset holdings that include claims denominated in foreign currency. The purpose of this paper is to present the development of the treatment of exchange risk in the CAPM framework in such a way as to be a useful introduction to the theory, as well as to provide some insight into the questions the theory must address and the problems it poses. This study examines the accounting, financial, and market variables which predict merger and acquisition target companies for this active time of business combinations. A sample of firms which experienced combinations during this period was matched with nonmerged companies similar in industry and asset size.