The Drivers of Expected Returns in International Markets

Abstract

This paper examines a comprehensive list of 18 different risk factors that potentially impact international equity returns. These factors include systematic risk, idiosyncratic risk, size, semi-variance, downside betas, value-at-risk, skewness, coskewness, kurtosis, political risk and country risk. I investigate whether these risk factors explain the cross-section of average returns in 47 countries. I also analyze whether the same risk factors influence developed and emerging market returns. I find evidence that an asset pricing framework that incorporates skewness has success in explaining average returns.