Ž . Pacific-Basin Finance Journal 6 1998 103–114 Risk factors in the Malaysian stock market Andrew D. Clare a , Richard Priestley b, ) a ISMA Centre, Department of Economics, UniÕersity of Reading, Whiteknights, Reading RG6 6AA, UK b Department of Business Economics, Norwegian School of Management, Elias Smiths Õei 15, P.O. Box 580, N-1301 SandÕika, Norway Abstract Ž . Using factors similar to those used by Chen et al. 1986 , we use the APT to describe the risk-return relationship of the Malaysian stock market. We find however that a proxy for international risk can be used to augment the domestic version of the APT for the Malaysian market. These results are important for corporate managers undertaking cost of capital calculations, for fund managers making investment decisions and, amongst others, for investors who wish to assess the performance of managed funds. q 1998 Elsevier Science B.V. All rights reserved. JEL classification: GO; G1 Keywords: Risk; Return; CAPM; APT; International factors 1. Introduction The rapid growth in non-US stock markets, especially those of South East Asia, and the rise in cross-border equity investments has focused attention on so called emerging markets. The above average growth rates in these economies, govern- ment privatisation programmes and the increase in the flow of funds from developed countries towards these developing stock markets has led to the growth of their economies and equity markets. One consequence of this growth is that ) Corresponding author. Tel.: q 47-67-570500; fax: q 47-67-570575; e-mail: richard.priestley@bi.no. 0927-538Xr98r$19.00 q 1998 Elsevier Science B.V. All rights reserved. Ž . PII: S0927-538X 97 00026-7