What Factors Drive Global Stock Returns?
Charles A. Dice Center Working Paper No. 2006-009
65 Pages Posted: 15 Jun 2006 Last revised: 27 May 2011
Date Written: January 4, 2011
Using monthly returns for over 27,000 stocks from 49 countries over a three-decade period, we show that a multifactor model that includes factor-mimicking portfolios based on momentum and cash flow-to-price captures significant time series variation in global stock returns, and has lower pricing errors and fewer model rejections than the global CAPM or a popular model that uses size and book-to-market factors. We find reliable evidence that the global cash flow-to-price factor is related to a covariance risk model. In contrast, we reject the covariance risk model in favor of a characteristic model for size and book-to-market factors.
Keywords: International finance; asset pricing models; common factors
JEL Classification: F30, G14, G15
Suggested Citation: Suggested Citation