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H. Kent Baker and Leigh A. Riddick

Print publication date: 2012

Print ISBN-13: 9780199754656

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199754656.001.0001

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International Equity Markets: Risk and Return

International Equity Markets: Risk and Return

Chapter:
(p.184) 9 International Equity Markets: Risk and Return
Source:
International Finance
Author(s):

YIGIT ATILGAN

TURAN G. BALI

K. OZGUR DEMIRTAS

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199754656.003.0009

There is mixed evidence from U.S. studies on the relationship between conditional expected market returns and conditional variance. This chapter investigates the risk-return tradeoff in the international context. Using market return data from 27 emerging countries, pooled panel regressions show a significantly positive relationship between monthly excess market returns and realized variance measures that are constructed based on past daily returns over windows ranging from six to 12 months. The same relationship does not hold when the analysis is repeated for 25 developed countries. Stacked time-series and stacked cross-sectional regressions indicate that a cross-sectional correlation across countries rather than an intertemporal relation drives the positive risk-return tradeoff in emerging countries. A significantly positive relationship exists between dividend yield and aggregate returns for emerging markets but this does not affect the positive risk-return tradeoff.

Keywords:   international equity index returns, risk-return relation, intertemporal CAPM, realized variance

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