Non-U.S. Multi-Factor Data Sets Should be Used with Caution

36 Pages Posted: 4 Feb 2014 Last revised: 3 Nov 2015

See all articles by Roman Brückner

Roman Brückner

Humboldt University of Berlin - School of Business and Economics

Patrick Lehmann

Humboldt University of Berlin

Martin H. Schmidt

Humboldt University of Berlin - School of Business and Economics

Richard Stehle

Humboldt University of Berlin - School of Business and Economics

Date Written: November 3, 2015

Abstract

Due to the success of the Fama/French three-factor model, many factor sets for non-U.S. stock markets have been estimated and applied. Exporting a specific factor model from the U.S. to another country seems to be an easy and well-defined task. We use the example of Germany to illustrate that this is not the case. The factor sets offered by seven providers who all intend to exactly replicate the four-factor model with German data take the country-specific institutional settings into account in different ways. As a consequence of these differ-ences and of quality problems in the underlying databases, the factor time series differ consid-erably and produce very different results in two standard applications. We can well imagine that similar problems exist for other countries, especially because four of the seven providers of factors for Germany offer identically calculated factors for a large number of countries. In addition to noting problems, we give advice to providers and users of non-U.S. factor sets.

Keywords: data quality, factor model, risk factors, MSCI indices, Germany

JEL Classification: G12

Suggested Citation

Brückner, Roman and Lehmann, Patrick and Schmidt, Martin H. and Stehle, Richard, Non-U.S. Multi-Factor Data Sets Should be Used with Caution (November 3, 2015). Available at SSRN: https://ssrn.com/abstract=2390063 or http://dx.doi.org/10.2139/ssrn.2390063

Roman Brückner

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Patrick Lehmann

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

HOME PAGE: http://www.wiwi.hu-berlin.de/finance

Martin H. Schmidt

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49-30-2093-5761 (Phone)
+49-30-2093-5666 (Fax)

HOME PAGE: http://www.wiwi.hu-berlin.de/professuren/bwl/bb/

Richard Stehle (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49-30-2093-5761 (Phone)
+49-30-2093-5666 (Fax)

HOME PAGE: http://www.wiwi.hu-berlin.de/professuren/bwl/bb/

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