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The equity premium of the S&P 500 index is explained in this paper by several variables that can be grouped into fundamental, behavioral, and macroeconomic factors. We hypothesize that the statistical significance of these variables changes across economic regimes. The three regimes we consider are the low‐volatility, medium‐volatility, and high‐volatility regimes in contrast to previous studies that do not differentiate across economic regimes. By using the three‐state Markov switching regime econometric methodology, we confirm that the statistical significance of the independent variables representing fundamentals, macroeconomic conditions, and a behavioral variable changes across economic regimes. Our findings offer an improved understanding of what moves the equity premium across economic regimes than what we can learn from single‐equation estimation. Our results also confirm the significance of momentum as a behavioral variable across all economic regimes

To provide an alternative channel of investigation of comovement in four large European equity markets over a sample period of nearly 30 years.

The paper adopts a two stage methodological approach. In the first instance, the interaction between the equity market and the industrial production in each of the countries is analysed in a hidden Markov framework. This helps extract the information on expansion and contraction of the economies over the three decades. In the second stage, the inference on probability of expansion and contraction of the economies is used to measure the level concordance between these probability series. This helps deduce the level of comovement between the equity markets.

Although the nature of interaction between the equity market and the industrial production in these countries are different, the overall comovement in the equity markets is well established.

The paper introduces a new style in the process of investigation with respect to comovement in different markets and illustrates that with an example of four large European markets.

Terrorism, an important component of Political risk as a possible determinant of ADRs (American Depository Receipts) returns have received little attention in academic literature. To address this issue and examine whether political risk is a major determinant of ADR returns of emerging market countries, this paper empirically examines market valuation of Indian ADRs around acts of terrorism. Using a sample of 52 such events in the sample period Jan 2003‐Dec 2003 we empirically analyze returns of Indian ADRs. The results from our study indicate a marginally negative significant effect, failing to indicate that event of terrorist attacks severely affect the Indian ADRs listed on the US stock market. This may be explained by a combined effect of; (a) the optimism of US investors towards emerging markets, and (b) market participants becoming more resilient and making informed choices around the “general” events of terrorism.