International Factor Models

76 Pages Posted: 11 Feb 2020 Last revised: 5 May 2020

See all articles by Daniel Huber

Daniel Huber

Technische Universität München (TUM)

Fabian Preissler

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

Date Written: February 6, 2020

Abstract

We compare prominent factor models from Behavioral finance (Daniel, Hirshleifer, and Sun, 2020; Stambaugh and Yuan, 2017) and Neoclassical finance (Sharpe, 1964 and Lintner, 1965; Fama and French, 1993, 2015, 2018; Hou et al., 2020; Hou, Xue, and Zhang, 2015) on the four regions North America, Europe, Asia Pacific and Japan based on the maximum squared Sharpe ratio. Relying on the pairwise comparison tests introduced by Barillas et al. (2019), we find that the Hou et al. (2020) five-factor model dominates all other models besides the Daniel, Hirshleifer, and Sun (2020) three-factor model in North America. In Europe, the Daniel, Hirshleifer, and Sun (2020) model, the Stambaugh and Yuan (2017) model and the Fama and French (2018) model share the first rank. In Asia Pacific, the Stambaugh and Yuan (2017) model dominates all other models besides the Daniel, Hirshleifer, and Sun (2020) model. In Japan, the Stambaugh and Yuan (2017) model has the highest in-sample maximum squared Sharpe ratio, but only the difference to the CAPM is significant. These results are supported by means of multiple model comparison tests and a bootstrap simulation.

Keywords: Asset pricing, Factor models, International stock markets

JEL Classification: G12, G15

Suggested Citation

Huber, Daniel and Preissler, Fabian, International Factor Models (February 6, 2020). Available at SSRN: https://ssrn.com/abstract=3533524 or http://dx.doi.org/10.2139/ssrn.3533524

Daniel Huber (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Fabian Preissler

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft ( email )

Stuttgart
Germany

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