We propose an estimation methodology tailored for large unbalanced panels of individual stock

returns to study the factor structure and expected returns in international stock markets. We show

that the local market is necessary to capture the factor structure in both developed and emerging

markets. Neither the presence of multiple world risk factors, regional risk factors, systematic

currency risk factors, nor a country-specific currency subsumes the importance of the local market

factor. All factors, including the local market, carry significant risk premia across a large proportion

of countries. The contribution of pricing errors to total expected returns is large and time-varying.