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An Alternative Three-Factor Model for International Markets: Evidence from the European Monetary Union

32 Pages Posted: 29 Oct 2013  

Manuel Ammann

University of St. Gallen - School of Finance

Sandro Odoni

University of St. Gallen - Swiss Institute of Banking and Finance

David Oesch

University of Zurich

Date Written: February 1, 2012

Abstract

In this paper, we construct the three-factor model introduced by Chen et al. (2010) for a European sample covering 10 countries from the European Monetary Union and the period from 1990 to 2006. Two key findings result. First, we show that the properties of the European factors are comparable to those of the U.S. factors. Second, we show that the alternative three-factor model’s explanatory power is either equal or superior to the explanatory power of traditional models when applied to five commonly known stock market anomalies. Our results thus suggest the use of international versions of the Chen et al. (2010) factor model in addition to traditional factor models in international empirical finance research.

Keywords: Multi-factor models, Cross-section of stock returns, Fama and French three-factor

JEL Classification: E44; G12; G14

Suggested Citation

Ammann, Manuel and Odoni, Sandro and Oesch, David, An Alternative Three-Factor Model for International Markets: Evidence from the European Monetary Union (February 1, 2012). Journal of Banking and Finance, Vol. 36, No. 7, 2012. Available at SSRN: https://ssrn.com/abstract=2346124

Manuel Ammann (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Sandro Odoni

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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