COMMONALITY IN THE DETERMINANTS OF EXPECTED STOCK-RETURNS

We find that the determinants of the cross-section of expected stock r eturns are stable in their identity and influence from period to perio d and from country to country. Out-of-sample predictions of expected r eturn are strongly and consistently accurate. Two findings distinguish this paper from others in the contemporary literature: First, stocks with higher expected and realized rates of return are unambiguously lo wer in risk than stocks with lower returns. Second, the important dete rminants of expected stock returns are strikingly common to the major equity markets of the world. Overall, the results seem to reveal a maj or failure in the Efficient Markets Hypothesis.