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The Alternative Three-Factor Model: An Alternative beyond US Markets?

Authors


  • *We are grateful to John Doukas, and an anonymous referee for helpful feedback. We would also like to thank seminar participants at the University of Regensburg for their help and suggestions.

Abstract

We investigate the performance of the alternative three-factor model across markets. The important US evidence of Chen et al. (2010) in favour of the alternative model does not translate to a test setting using data from 40 non-US stock markets. The three-factor model of Fama and French provides persistently a better description of average returns. Our analysis is robust across developed and emerging markets, robust to alternative measures of investment and profitability, to seasonality effects, to size-segmented subsamples and subperiods, to various test assets, and to the two-stage cross-section regression approach to test for priced factors.

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