The Global Determinants of International Equity Risk Premiums

61 Pages Posted: 20 Apr 2019 Last revised: 15 Jul 2021

See all articles by Juan M. Londono

Juan M. Londono

Board of Governors of the Federal Reserve System

Nancy R. Xu

Boston College, Carroll School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 2021

Abstract

We examine the commonality in international equity risk premiums by linking empirical evidence for the international stock return predictability of US downside and upside variance risk premiums (DVP and UVP, respectively) with implications from an international asset pricing framework, which features asymmetric global macroeconomic, financial market, and risk aversion shocks. We find that DVP and UVP predict international stock returns through different global equity risk premium determinants: bad and good macroeconomic uncertainties, respectively. Across countries, US investors demand lower macroeconomic risk compensation but higher financial market risk compensation for more-integrated countries.

Keywords: Downside variance risk premium, Upside variance risk premium, International stock markets, Asymmetric state variables, Stock return predictability

JEL Classification: F36, G12, G13, G15

Suggested Citation

Londono-Yarce, Juan-Miguel and Xu, Nancy R., The Global Determinants of International Equity Risk Premiums (July 14, 2021). Available at SSRN: https://ssrn.com/abstract=3366592 or http://dx.doi.org/10.2139/ssrn.3366592

Juan-Miguel Londono-Yarce

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nancy R. Xu (Contact Author)

Boston College, Carroll School of Management ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

HOME PAGE: http://www.nancyxu.net

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