Parallels between the cross-sectional predictability of stock and country returns - Striking similarities in the predictive power of value, momentum, and size.

Book-to-market ratio (BE/ME), market equity (ME), and one-year past return (momentum) (MOM) help explain the cross-section of expected individual stock returns within the United States and other countries. Examining equity markets as a whole, in contrast to individual stocks, the authors uncover strong parallels between the explanatory power of these variables for individual stocks and for countries. First, country versions of BE/ME, ME, and MOM help explain the cross-section of expected country returns. Second, the January seasonal in ME's explanatory power for stocks also appears for countries. Third, portfolios formed by sorting stocks and countries on these variables produce similar patterns in profitability before and after the portfolio formation date.