Factors and risk premia in individual international stock returns

Ines Chaieb, Hugues Langlois and Olivier Scaillet

Journal of Financial Economics, 2021, vol. 141, issue 2, 669-692

Abstract: We propose an estimation methodology tailored for large unbalanced panels of individual stock returns to study the factor structure and expected returns in international stock markets. We show that the local market is necessary to capture the factor structure in both developed and emerging markets. Neither the presence of multiple world or regional risk factors, systematic currency risk factors, nor a country-specific currency subsumes the importance of the local market factor. All factors, including the local market, carry significant risk premia across a large proportion of countries. The contribution of pricing errors to total expected returns is large and time-varying.

Keywords: Approximate factor model; Emerging markets; International asset pricing; Large panel; Time-varying risk premium (search for similar items in EconPapers)
JEL-codes: C12 C13 C23 C51 C52 G12 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:2:p:669-692

DOI: 10.1016/j.jfineco.2021.04.007

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