Exploring the time-variation of expected returns on international markets

Abstract

The analysis documented in Chapter 6 identifies global risk factors that have an influence on returns of international stock and bond markets. The most important findings: There exist some global economic factors which significantly move asset prices worldwide. The return on the world market portfolio, shifts in global long term-interest rates, and the change in the external value of the numeraire currency, the Swiss franc, have an impact on both the variance and the long-term average of international asset returns. In other words, the stock and bond markets’ exposures to these global factors affect their average returns in the spirit of beta pricing theory. However, sub-period estimation results strongly indicate that the rewards global investors can expect for bearing such risks vary considerably over time.