An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns

Wayne Ferson () and Campbell Harvey ()

No 4595, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies average and conditional expected returns in national equity markets, and their relation to a number of fundamental country attributes. The attributes are organized into three groups. The first is relative valuation ratios, such as price-to-book-value, cash-flow, earnings and dividends. The second group measures relative economic performance and the third measures industry structure. We find that average returns across countries are related to the volatility of their price-to-book ratios. Predictable variation in returns is also related to relative gross domestic product, interest rate levels and dividend-price ratios. We explore the hypothesis that cross-sectional variation in the country attributes proxy for variation in the sensitivity of national markets to global measures of economic risks. We test single-factor and two-factor models in which countries' conditional betas are assumed to be functions of the more important fundamental attributes.

JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 1993-12
Note: AP IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published as The Internationalization of Equity Markets, Jeffrey A. Frankel, ed., pp. 59-138, (Chicago: University of Chicago Press: 1994).
Published as An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns , Wayne Ferson, Campbell R. Harvey. in The Internationalization of Equity Markets , Frankel. 1994

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Chapter: An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns (1994)
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