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Sources of risk and expected returns in global equity markets

Journal of Banking and Finance, 18 (1994): 775-803

Wayne E. Ferson

Department of Finance and Business Economics DJ- 10, University of Washington, Seattle, WA

98195, USA

Campbell R. Harvey

The Fuqua School of Business, Duke University, Durham, NC, USA

National Bureau ofeconomic Research, Cambridge, MA, USA


This paper empirically examines multifactor asset pricing models for the returns and expected returns on eighteen national equity markets. The factors are chosen to measure global economic risks. Although previous studies do not reject the unconditional mean variance efficiency of a world market portfolio, our evidence indicates that the tests are low in power, and the world market betas do not provide a good explanation of the cross-sectional differences in average returns. Multiple beta models provide an improved explanation of the equity returns.