Country-specific idiosyncratic risk and global equity index returns

► The idiosyncratic volatility puzzle is not present in country-level equity indices. ► Time-series properties of country-specific and firm-specific shocks are different. ► Country-specific volatility is more persistent than firm-specific volatility. ► Country-specific return skewness is not significant enough to affect index returns. ► Investment strategies in forming global and domestic portfolios should differ.