International Spillovers of Fama-French Factors: Evidence from the Us, Europe, and Asia

29 Pages Posted: 14 Feb 2024

See all articles by Nima Vafai

Nima Vafai

University of Texas of the Permian Basin

Alper Gormus

affiliation not provided to SSRN

Marcos Velazquez

University of Texas of the Permian Basin

Abstract

We contribute to the literature on market transmission mechanisms by analyzing how specific risk factors spread between equity markets in the United States, Europe, and Asia. We employ recently developed level and volatility transmission models that can capture gradual or smooth breaks, which are difficult to identify with other methods. Our study uses daily Fama-French 5-factor and Momentum data spanning 1990-2022. Our results reveal widespread evidence of spillovers in the market, size, profitability, investment profile, and momentum factors from the US to Europe and Asia, but no transmission of value or momentum premiums from any source to the US. Moreover, US risk factors appear impervious to economic cycles, while other regions tend to transmit more during contractionary periods. Volatility spillovers consistently propagate from the US to other markets, but there is evidence of transmission across all factors from at least one of the other regions. Our results do not provide strong evidence for the benefits of geographical diversification, and our findings have implications for investors who seek to hedge their portfolios through international exposure.

Keywords: Contagion, Spillover, Risk Factors, Interdependence, International Markets

Suggested Citation

Vafai, Nima and Gormus, Alper and Velazquez, Marcos, International Spillovers of Fama-French Factors: Evidence from the Us, Europe, and Asia. Available at SSRN: https://ssrn.com/abstract=4726401 or http://dx.doi.org/10.2139/ssrn.4726401

Nima Vafai (Contact Author)

University of Texas of the Permian Basin ( email )

4901 East University
Odessa, TX 79762
United States

Alper Gormus

affiliation not provided to SSRN ( email )

No Address Available

Marcos Velazquez

University of Texas of the Permian Basin ( email )

4901 East University
Odessa, TX 79762
United States

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