Size, Value, Profitability, and Investment Effects in International Stock Returns: Are They Really There?

Abstract

Using data on 65,000 stocks from 23 countries, the authors re-evaluate the performance of the Fama-French (2015) factors in global markets. The results provide convincing evidence that the value, profitability, and investment factors are far less reliable than commonly thought. Their performance depends strongly on the geographical region and period examined. Furthermore, most factor returns are driven by the smallest firms. Virtually no value or investment effects are present among the big firms representing most of the total market capitalization worldwide. Given that the smallest firms are typically not investable by major financial institutions, these findings cast doubt on the five-factor model’s applicability in international markets.

Keywords: Five-Factor Model, Size, Value, Profitability, Investment, Asset Pricing, International Stock Markets, Small-Minus-Big (SMB), High-Minus-Low (HML), Robust-Minus-Weak (RMW), Conservative-Minus-Aggressive (CMA)

JEL Classification: C89, G12, G15