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Size and Value Premium in International Portfolios: Evidence from 15 European Countries

Ayesha Afzal and Nawazish Mirza ()
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Nawazish Mirza: Center for Research in Economics and Business, Lahore School of Economics,

Czech Journal of Economics and Finance (Finance a uver), 2011, vol. 61, issue 2, 173-190

Abstract: The current study evaluates the performance of the Fama and French three-factor model in a global setting with stocks selected from 15 European countries. We employed the multivariate regression approach after sorting six portfolios according to size and book-to-market. The constituent stocks were selected to represent each country of our sample. In order to homogenize the returns we used the spot exchange rates of non-euro-area countries to convert prices into euros. Since we were analyzing on a global portfolio level we used the MSCI EMU index as the proxy for the market portfolio. Daily returns were employed for a period of five years from January 2002 to December 2006. The results were not very encouraging for the three-factor model. Except for one portfolio, the three-factor model failed to explain the variations in returns, and even in the single portfolio that demonstrated size and value premiums, the market premium was insignificant. Our findings are consistent with Griffin (2002), who suggested that the three-factor model is domestic in nature and performs poorly for global portfolios.

Keywords: international asset pricing; Fama and French factor model (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:fau:fauart:v:61:y:2011:i:2:p:173-190