2001, Federal Reserve Bank of Atlanta Working Paper 2001-26. [Paper]. In this paper, I formulate and test an international intertemporal capital asset pricing model in the presence of deviations from purchasing power parity (II-CAPM [PPP]). I find evidence in favor of at least mild segmentation of international equity markets in which only global market risk appears to be priced. When using the Hansen and Jagannathan (1991, 1997) variance bounds and distance measures as testing devices, I find that, while all international asset pricing models are formally rejected by the data, their pricing implications are substantially different. The superior performance of the II-CAPM (PPP) is mainly attributable to significant hedging against inflation risk.