Exploring Risk Premium Factors for Country Equity Returns

55 Pages Posted: 4 Aug 2021

See all articles by Giovanni Calice

Giovanni Calice

Loughborough University

Ming-Tsung Lin

University of Essex

Date Written: April 6, 2021

Abstract

In this paper, we study a comprehensive set of risk premia of country equity returns for 45 countries over the sample period 2002 to 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 model. 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.

Keywords: Country Equity Return, Country-based Portfolio, Country Risk Premium, Country Equity Asset Pricing Model

JEL Classification: G11, G12, G15, G17

Suggested Citation

Calice, Giovanni and Lin, Ming-Tsung, Exploring Risk Premium Factors for Country Equity Returns (April 6, 2021). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3897659

Giovanni Calice

Loughborough University ( email )

Ashby Road
Loughborough, LE11 3TU
Great Britain

Ming-Tsung Lin (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

HOME PAGE: http://https://www.essex.ac.uk/people/linmi48001/ming-tsung-lin

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