The Global Determinants of International Equity Risk Premiums

67 Pages Posted: 14 Jun 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: May, 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 takes the perspective of a US/global investor and 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.

JEL Classification: F36, G12, G13, G15

Suggested Citation

Londono-Yarce, Juan-Miguel and Xu, Nancy R., The Global Determinants of International Equity Risk Premiums (May, 2021). International Finance Discussion Paper No. 1318, Available at SSRN: https://ssrn.com/abstract=3865433 or http://dx.doi.org/10.17016/IFDP.2021.1318

Juan-Miguel Londono-Yarce (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

Nancy R. Xu

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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