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

68 Pages Posted: 13 Jul 2000  

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Date Written: December 1993

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.

Suggested Citation

Ferson, Wayne E. and Harvey, Campbell R., An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns (December 1993). NBER Working Paper No. w4595. Available at SSRN: https://ssrn.com/abstract=226753

Wayne E. Ferson (Contact Author)

University of Southern California ( email )

Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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