← Search

What Factors Drive Global Stock Returns?

Kewei Hou1; G. Andrew Karolyi2; Bong-Chan Kho3

1 The Ohio State University · 2 Cornell University · 3 Seoul National University

Review of Financial Studies 2011

Using monthly returns for over 27,000 stocks from 49 countries over a three-decade period, we show that a multifactor model that includes factor-mimicking portfolios based on momentum and cash flow-to-price captures significant time-series variation in global stock returns, and has lower pricing errors and fewer model rejections than the global CAPM or a popular model that uses size and book-to-market factors. We find reliable evidence that the global cash flow-to-price factor is related to a covariance risk model. In contrast, we reject the covariance risk model in favor of a characteristic model for size and book-to-market factors.

DOI
10.1093/rfs/hhr013
Volume
24 (8)
Pages
2527-2574
Language
en
Export
BibTeX
Sources
openalex crossref