Are the Fama and French Factors Global or Country-Specific?

Griffin, John M.

doi:10.2139/ssrn.262647

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Are the Fama and French Factors Global or Country-Specific?

41 Pages Posted: 8 Mar 2001

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

There are 2 versions of this paper

Date Written: undated

Abstract

This paper examines whether country-specific or global versions of Fama and French's three-factor model better explain time-series variation in international stock returns. Regressions for portfolios and individual stocks indicate that domestic factor models explain much more time-series variation in returns and generally have lower pricing errors than does the world factor model. In addition, decomposing the world factors into domestic and foreign components demonstrates that the addition of foreign factors to domestic models leads to less accurate in- and out-of-sample pricing. Practical applications of the three-factor model, such as cost-of-capital calculations and performance evaluation, are best performed on a country-specific basis.

JEL Classification: G12, G15, F20

Suggested Citation: Suggested Citation

Griffin, John M., Are the Fama and French Factors Global or Country-Specific? (undated). Available at SSRN: https://ssrn.com/abstract=262647 or http://dx.doi.org/10.2139/ssrn.262647