Implementing the Fama-French Five-Factor Model for the German Stock Market

Abstract

We implement the Fama-French five-factor model for the German market using recent monthly data from 2002 to 2017. We construct the five factors associated with the market, size, value, profitability, and investment for the CDAX constituents and examine to which extent the five-factor model captures the return premia in the German market. The results show that in comparison with the three factor model, the five factor model does not add significant explanatory power to the analysis. We conclude that, the validity of the profitability and investment factors within the context of international asset pricing studies, cannot be transferred to the country specific case of the German market.

Keywords: asset pricing, Fama-French five factor model, German stock market

JEL Classification: G10, G12