Currency Conversion of Fama/French Factors: How and Why

29 Pages Posted: 19 Aug 2019 Last revised: 4 Mar 2020

See all articles by Maximilian Glück

Maximilian Glück

Friedrich-Alexander-Universität Erlangen-Nürnberg

Benjamin Hübel

Friedrich-Alexander-Universität Erlangen-Nürnberg

Hendrik Scholz

Friedrich-Alexander-Universität Erlangen-Nürnberg

Date Written: February 18, 2020

Abstract

A convenient way to apply Fama/French factor models in empirical research is to use factor returns downloaded from databases like Kenneth French’s data library. These factors are usually provided in US dollars – for both US and non-US stock markets. When evaluating non-US data samples from a non US-dollar investor’s perspective (e.g., European funds from a EUR perspective), we point out that the downloaded factors need to be converted into the respective non-US-dollar currency. In this paper, we show how to convert the currencies of downloaded factors. Moreover, we illustrate the statistical and practical relevance of the currency conversion based on passive index returns of the MSCI Europe IMI and returns of actively managed European equity funds from a EUR perspective. Our findings suggest that neglecting the currency conversion results in skewed estimated alphas and factor loadings. The currency conversion of downloaded factors is thus relevant in drawing reliable conclusions when applying factor models from a non-US dollar perspective.

Keywords: Fama/French factors, Currency conversion, International perspective, Performance analysis

JEL Classification: G11, G12, G14

Suggested Citation

Glück, Maximilian and Hübel, Benjamin and Scholz, Hendrik, Currency Conversion of Fama/French Factors: How and Why (February 18, 2020). Available at SSRN: https://ssrn.com/abstract=3437648 or http://dx.doi.org/10.2139/ssrn.3437648

Maximilian Glück (Contact Author)

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

Benjamin Hübel

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Germany
0049-911-5302405 (Phone)
0049-911-5302466 (Fax)

HOME PAGE: http://www.lfb.rw.fau.de/team/research-assistants/benjamin-huebel/

Hendrik Scholz

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

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