Trade integration and research and development investment as a proxy for idiosyncratic risk in the cross-section of stock returns Galicia Sanguino, Lucía Rojo Suárez, Javier Alonso Conde, Ana B. López Pérez, María Victoria CCAPM Idiosyncratic risk Income inequality Trade openness Research and development investment Japanese equity market This work was supported by the Education and Research Service of the Madrid regional government and the European Social Fund [grant numbers PEJD-2017-PRE/SOC-4289 and PEJD-2018-PRE/SOC-8898] . Although consumption-based asset pricing constitutes a solid body of work for the purpose of relating asset prices and macroeconomics, most empirical tests put into question the representative investor perspective. Furthermore, most approaches accounting for untraded risks, such as the Constantinides-Duffie model, face the problem of correctly quantifying idiosyncratic risk. In this paper we exploit the strong relationship of income inequality with trade openness and research and development (R&D) investment to proxy the cross-sectional variance of consumption growth by the growth rate of imports plus exports (trade openness) and the growth of the domestic expenditure in R&D. Moreover, we use these variables as a part of the information set used by investors to determine the unconditional version of the conditional consumption-capital asset pricing model (CCAPM). Our results show that both trade openness and R&D investment allow the linearized version of the Constantinides-Duffie model and the conditional CCAPM to greatly outperform the classic CCAPM for different sorts of stock portfolios, contributing significantly to reducing pricing errors. Hence, our results constitute a step forward in the attempt to relate asset prices and income inequality in a tractable way. 2021-10-08T09:54:16Z 2021-10-08T09:54:16Z 2021-09 journal article L. Galicia-Sanguino et al. Trade integration and research and development investment as a proxy for idiosyncratic risk in the cross-section of stock returns. Pacific-Basin Finance Journal 68 (2021) 101623. [https://doi.org/10.1016/j.pacfin.2021.101623] http://hdl.handle.net/10481/70745 10.1016/j.pacfin.2021.101623 eng http://creativecommons.org/licenses/by-nc-nd/3.0/es/ open access Atribución-NoComercial-SinDerivadas 3.0 España Elsevier