Barroso, PedroMaio, Paulo2024-09-102024-09-1020171556-5068http://hdl.handle.net/10400.14/46435We examine the time-series risk-return trade-off among equity factors. We obtain a positive tradeoff for profitability and investment factors. Such relationship subsists conditional on the covariance with the market factor, which represents consistency with Merton’s ICAPM. Critically, we obtain an insignificant risk-return relationship for the market factor. The factor risk-return trade-off tends to be weaker among international equity markets. The out-of-sample forecasting power (of factor variances for future own returns) tends to be economically significant for the investment and profitability factors. Our results suggest that the risk-return trade-off is stronger within segments of the stock market than for the whole.engAsset pricingRisk-return tradeoffICAPMRealized volatilityProfitability and investment factorspreprint10.2139/ssrn.2909085