International Factor Models
47 Pages Posted: 11 Feb 2020 Last revised: 16 May 2023
Date Written: March 4, 2021
We evaluate the relative and absolute performance of competing factor-based asset pricing models in international regions and globally. Our holistic analysis controls for model transaction costs and incorporates both right-hand-side tests (based on maximum squared Sharpe ratios) and left-hand-side tests (individual return predictors, composite mispricing proxies). The overall view of the tests shows that recently proposed models tend to perform better than classical models, but otherwise perform comparably. This finding, the performance of the models in some of the LHS tests as well as further results collectively suggest the need for new powerful asset pricing models for global equity markets.
Keywords: Asset pricing, Factor models, International stock markets
JEL Classification: G12, G15
Suggested Citation: Suggested Citation