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Exploring risk premium factors for country equity returns

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  • Calice, Giovanni
  • Lin, Ming-Tsung

Abstract

In this paper, we study a comprehensive set of risk premia of country equity returns for 45 countries over the sample period 2002 - 2018 in both a single and a multiple factor setting. Using a new three-pass estimation method for factor risk premia by Giglio and Xiu (2021), we find that several factors, including default risk, are also priced in country equity excess returns, controlled by the Fama–French 5-factor and Carhart models. Moreover, we apply a novel approach to investigate the multi-factor impact on country equity returns. We find that the multi-factor information, constructed from the first principal component of the statistically significant single factors, provides a consistent and stronger prediction of anomalies in country equity returns.

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  • Calice, Giovanni & Lin, Ming-Tsung, 2021. "Exploring risk premium factors for country equity returns," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 294-322.
    • Handle: RePEc:eee:empfin:v:63:y:2021:i:c:p:294-322
    DOI: 10.1016/j.jempfin.2021.07.003
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    Cited by:

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    2. Zaremba, Adam & Cakici, Nusret & Bianchi, Robert J. & Long, Huaigang, 2023. "Interest rate changes and the cross-section of global equity returns," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).

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    More about this item

    Keywords

    Country equity return; Country-based portfolio; Country risk premium; Country equity asset pricing model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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