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An Alternative Three-factor Model for International Markets: Evidence from the European Monetary Union

Manuel Ammann, Sandro Odoni & David Oesch

abstract In this paper, we construct the three-factor model introduced by Chen et al. (2010) for a European sample covering 10 countries from the European Monetary Union and the period from 1990 to 2006. Two key findings result. First, we show that the properties of the European factors are comparable to those of the U.S. factors. Second, we show that the alternative three-factor model’s explanatory power is either equal or superior to the explanatory power of traditional models when applied to five commonly known stock market anomalies.
Our results thus suggest the use of international versions of the Chen et al. (2010) factor model in addition to traditional factor models in international empirical finance research.
   
type journal paper
   
keywords Multi-factor models; Cross-section of stock returns; Fama and French three-factor
model
   
language English
kind of paper journal article
date of appearance 7-2012
journal Journal of Banking & Finance
publisher Elsevier (Amsterdam)
ISSN 0378-4266
ISSN (online) 1872-6372
DOI 10.1016/j.jbankfin.2012.02.001
volume of journal 36
number of issue 7
page(s) 1857-1864
review double-blind review
   
citation Ammann, M., Odoni, S., & Oesch, D. (2012). An Alternative Three-factor Model for International Markets: Evidence from the European Monetary Union. Journal of Banking & Finance, 36(7), 1857-1864, DOI:10.1016/j.jbankfin.2012.02.001.