Size and Value Premium in International Portfolios: Evidence from Fifteen European Countries

Abstract:     
The current study evaluates the performance of Fama and French Three Factor model in a global setting with stocks selected from fifteen European countries. We employed the multivariate regression approach after sorting six portfolios on size and book to market. The constituent stocks were selected to represent each and every country of our sample. In order to homogenize returns we used spot exchange rates of non euro countries to convert prices into euro denomination. Since we were analyzing on a global portfolio level we used the MSCI EMU index as the proxy for market portfolio. Daily returns were employed for a period of five years starting from January 2002 to December 2006. The results were not very encouraging for the three factor model. Except for one portfolio, the three factor model failed to explain the variations in returns and even in the single portfolio that demonstrated size and value premiums, market premium was insignificant. Our findings are consistent with Griffin (2002) who suggested that three factor model is domestic in nature and performs poor for global portfolios.

Number of Pages in PDF File: 27

Keywords: International Asset Pricing, Fama and French Factor Model

JEL Classification: G11, G12, G14

working papers series