Estimating Expected Returns for Developed Equity Markets

Abstract

This research examines model construction, performance, and other issues related to estimating expected returns for twenty-one developed country equity markets. Using in- and out-of-sample time periods, the author examines the properties of expected and realized returns. Results show that the country-specific alpha models predicts expected equity returns quite well. The results are stronger in-sample than out-of-sample. Using subsets for the G-7 countries or regional models reduces, but does not eliminate, alpha effectiveness.