Expected Returns and Volatility in 135 Countries

28 Pages Posted: 23 Dec 2005 Last revised: 7 Aug 2020

See all articles by Claude B. Erb

Claude B. Erb


Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Tadas E. Viskanta

Ritholtz Wealth Management

Date Written: February 7, 1996


We analyze expected returns and volatility in 135 different markets. We argue that country credit risk is a proxy for the ex-ante risk exposure of, particularly, segmented developing countries. We fit a time-series cross-sectional regression using data on the 47 countries which have equity markets. These regressions predict both expected returns and volatility using credit risk as a single explanatory variable. We then use the credit rating data on the other 88 countries to project hurdle rates and volatility into the future. Finally, we calculate for each country, the expected time in years, given the forecasted country risk premium and volatility, for an investor to break even and double the initial investment - with 90% probability. This is the final working paper version of our 1996 Journal of Portfolio Management paper.

Keywords: International cost of capital, country hurdle rates, forecasting volatility, forecasting correlation, country rate of return, country risk, political risk, credit ratings, risk ratings, hitting time

JEL Classification: G12, G15, G31, F30, F37

Suggested Citation

Erb, Claude B. and Harvey, Campbell R. and Viskanta, Tadas, Expected Returns and Volatility in 135 Countries (February 7, 1996). Available at SSRN: https://ssrn.com/abstract=871253 or http://dx.doi.org/10.2139/ssrn.871253

Claude B. Erb

TR ( email )

CA 90272
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

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

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tadas Viskanta

Ritholtz Wealth Management ( email )

24 West 40th Street
New York, NY 10018
United States

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