This paper examines the role of exchange rate risk in international asset pricing. The authors propose a conditional version of the Capital Asset Pricing Model (CAPM) that incorporates exchange rate risk premia, in addition to the traditional market risk premium. They test whether these additional risk premia empirically play a significant role in the pricing of securities. The study uses the Generalized Method of Moments (GMM) to estimate the conditional international CAPM and compares it with the classic CAPM. The authors find that the conditional international CAPM is not rejected by the data, suggesting that exchange rate risk does play a significant role in asset pricing. In contrast, the classic CAPM is rejected, indicating that the traditional model does not account for exchange rate risk. The study also tests the hypothesis that exchange rate risk receives a zero price in the conditional international CAPM and finds that this hypothesis is rejected. The authors also examine the role of conditioning information in asset pricing. They find that conditioning information, such as interest rates and dividend yields, is important in explaining asset returns. The study also tests the hypothesis that the international capital market is integrated, and finds that the world capital market, consisting of the stock and foreign exchange markets, is integrated. The authors conclude that exchange rate risk is priced in the international financial market, and that the conditional international CAPM provides a better explanation of asset returns than the classic CAPM. The study highlights the importance of incorporating exchange rate risk in international asset pricing models.This paper examines the role of exchange rate risk in international asset pricing. The authors propose a conditional version of the Capital Asset Pricing Model (CAPM) that incorporates exchange rate risk premia, in addition to the traditional market risk premium. They test whether these additional risk premia empirically play a significant role in the pricing of securities. The study uses the Generalized Method of Moments (GMM) to estimate the conditional international CAPM and compares it with the classic CAPM. The authors find that the conditional international CAPM is not rejected by the data, suggesting that exchange rate risk does play a significant role in asset pricing. In contrast, the classic CAPM is rejected, indicating that the traditional model does not account for exchange rate risk. The study also tests the hypothesis that exchange rate risk receives a zero price in the conditional international CAPM and finds that this hypothesis is rejected. The authors also examine the role of conditioning information in asset pricing. They find that conditioning information, such as interest rates and dividend yields, is important in explaining asset returns. The study also tests the hypothesis that the international capital market is integrated, and finds that the world capital market, consisting of the stock and foreign exchange markets, is integrated. The authors conclude that exchange rate risk is priced in the international financial market, and that the conditional international CAPM provides a better explanation of asset returns than the classic CAPM. The study highlights the importance of incorporating exchange rate risk in international asset pricing models.