Time-Varying Risk Premia in Large International Equity Markets

69 Pages Posted: 18 Jan 2018 Last revised: 15 Jun 2018

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Hugues Langlois

HEC Paris - Finance Department

O. Scaillet

University of Geneva GSEM and GFRI; Swiss Finance Institute; University of Geneva - Research Center for Statistics

Date Written: June 15, 2018

Abstract

We use an estimation methodology tailored for large unbalanced panels of individual stock returns to address key economic questions about the factor structure, pricing performance of factor models, and time-variations in factor risk premia in international equity markets. We estimate factor models with time-varying factor exposures and risk premia at the individual stock level using 62,320 stocks in 46 countries over the 1985-2018 period. We consider market, size, value, momentum, profitability, and investment factors aggregated at the country, regional, and world level. We find that adding an excess country market factor to world or regional factors is sufficient to capture the factor structure for both developed and emerging markets. We do not reject asset pricing restriction tests for multifactor models in 74% to 91% of countries. Value and momentum premia show more variability over time and across countries than profitability and investment premia. The excess country market premium is statistically significant in many developed and emerging markets but economically larger in emerging markets.

Keywords: large panel, approximate factor model, risk premium, international asset pricing, market integration

JEL Classification: C12, C13, C23, C51, C52 , G12, G15

Suggested Citation

Chaieb, Ines and Langlois, Hugues and Scaillet , O., Time-Varying Risk Premia in Large International Equity Markets (June 15, 2018). Swiss Finance Institute Research Paper No. 18-04; HEC Paris Research Paper No. FIN-2018-1250. Available at SSRN: https://ssrn.com/abstract=3103752 or http://dx.doi.org/10.2139/ssrn.3103752

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Hugues Langlois

HEC Paris - Finance Department ( email )

France

Olivier Scaillet

University of Geneva GSEM and GFRI ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+ 41 22 379 88 16 (Phone)
+41 22 389 81 04 (Fax)

HOME PAGE: http://www.scaillet.ch

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Geneva - Research Center for Statistics

Geneva
Switzerland

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