International Tests of a Five-Factor Asset Pricing Model

48 Pages Posted: 26 Jun 2015 Last revised: 31 Dec 2015

See all articles by Eugene F. Fama

Eugene F. Fama

University of Chicago - Finance

Kenneth R. French

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Date Written: December 25, 2015

Abstract

Average stock returns for North America, Europe, and Asia Pacific increase with the book-to-market ratio (B/M) and profitability and are negatively related to investment. For Japan the relation between average returns and B/M is strong, but average returns show little relation to profitability or investment. A five-factor model that adds profitability and investment factors to the three-factor model of Fama and French (1993) largely absorbs the patterns in average returns. As in Fama and French (2015a,b), the model’s prime problem is failure to capture fully the low average returns of small stocks whose returns behave like those of low profitability firms that invest aggressively.

Suggested Citation

Fama, Eugene F. and French, Kenneth R., International Tests of a Five-Factor Asset Pricing Model (December 25, 2015). Fama-Miller Working Paper; Tuck School of Business Working Paper No. 2622782. Available at SSRN: https://ssrn.com/abstract=2622782 or http://dx.doi.org/10.2139/ssrn.2622782

Eugene F. Fama (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

Kenneth R. French

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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