This paper uses multivariate statistical approaches to investigate the global sources of international real return variation. These approaches allow us to take into account the widely-documented evidence that stock market returns from different countries move in tandem with each other. In the spirit of Fama [Fama, E. F. (1990) Stock returns, expected returns, and real activity. Journal of Finance 45, 89-108.] we examine two potential sources of international real return variation: changes in expected future cash flows and changes in discount rates. In this study, common global economic variables that relate to changes in the global economy or to international business conditions serve as proxies for the two sources of variation. Our results show that these two sources of variation capture a statistically significant fraction of stock price variability; their explanatory power, however, differs across holding period horizons. While proxies for changes in discount rates have an incremental impact on both monthly and quarterly real returns, proxies for changes in expected future cash flows have only an incremental impact on quarterly real returns. Our results are also generally robust to the different methodologies employed. (JEL G12, G15, C32). © 1997 Elsevier Science Ltd. All rights reserved.