Growing Pains: International Instability and Equity Market Returns


We use the ratio of growth in global military expenditures to gross domestic product (GDP) to capture ex ante expectations of political instability and explore the relation between this measure and returns. In a standard global asset pricing framework with 44 countries, this measure helps to explain cross-country return differences. Furthermore, emerging countries have greater exposure to international political instability risk than developed countries. This partially explains the higher returns observed in emerging countries.

12 Figures and Tables

Cite this paper

@inproceedings{Chen2017GrowingPI, title={Growing Pains: International Instability and Equity Market Returns}, author={Zhuo Chen and Andrea Y. Lu and Zhuqing Yang}, year={2017} }