Risk and return in emerging markets: Family matters Javier Estrada a,∗, Ana Paula Serra b,1

The proper identification of the risk variables that explain the cross-section of returns in emerging markets has many and far-reaching implications for both companies and investors. We examine this risk–return relationship by focusing on three families of models, over 25 years of data, and over 1600 companies in 30 countries. We perform a statistical analysis that seeks to identify the variables that should be incorporated into the calculation of required returns on equity, and an economic analysis that seeks to determine the variables that produce the most profitable portfolio strategies. We find rather weak statistical results that prevent us from strongly recommending a given family to estimate required returns on equity. And we find somewhat stronger economic results that show that a variable belonging to our downside risk family, the global downside beta, is the one that has the largest impact on returns when portfolios are rebalanced every 5 years