In this study, we examine how idiosyncratic risk is correlated with a wide array of anomalies,including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals, in international equity markets. We use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. We provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. In addition, we find that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries. Our results support the mispricing explanation of the existence of various anomalies across global markets. (JEL: G12, G15) Keywords: anomalies, idiosyncratic risk, international equity markets, limits of arbitrage * Corresponding author, Tel: 1-262-472-6943, Email: fanz@uww.edu. We received valuable comments and suggestions from three anonymous referees and editors Panayiotis C. Andreou and Panayiotis Theodossiou. All mistakes and errors remain to be our own responsibility.

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Don't put all your eggs in one basket" is a time-honored investment practice whose intuitive appeal is straightforward, and diversification across stocks has long been recognized as a primary tool for controlling investment risk. The relationship between time and risk is a more complex issue, but understanding the effect of time on investment risk is important in selecting the correct portfolio strategy for any investor.