Abstract
This paper tests whether real stock returns from four countries are consistent with consumption-based models of international asset pricing. The paper finds that the consumption-based model does not adequately describe these returns during the period of generalized floating exchange rates. Since restrictions on international capital movements were relaxed considerably in the 1980s, the tests are carried out for that sub-period as well. In contrast to the results for the full sample, observed real equity returns during the 1980s are found to be consistent with the predictions of the consumption-based model.
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