EXPECTED RETURNS AND VOLATILITY IN 135 COUNTRIES

This article analyzes expected returns and volatility in 135 different markets, The authors argue that country credit risk is a proxy for th e ex ante risk exposure of, particularly, segmented developing countri es. They fit a time series cross-sectional regression using data on th e 47 countries that have equity markets. The regressions predict both expected returns and volatility using credit risk as a single explanat ory variable, These credit rating data are then used on the other 88 c ountries to project hurdle rates and volatility into the future. Final ly, the authors calculate for each country the expected time in years, given the forecasted country risk premium and volatility, for an inve stor to break even and double the initial investment with 90% probabil ity.