THE RISK AND PREDICTABILITY OF INTERNATIONAL EQUITY RETURNS

We investigate predictability in national equity market returns, and i ts relation to global economic risks. We show bow to consistently esti mate the fraction of the predictable variation that is captured by an asset pricing model for the expected returns. We use a model in which conditional betas of the national equity markets depend on local infor mation variables, while global risk premia depend on global variables. We examine single- and multiple-beta models, using monthly data for 1 970 to 1989. The models capture much of the predictability for many co untries. Most of this is related to time variation in the global risk premia.