Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for April 2021 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for April 2021 (Final)
1st ETF 2nd ETF 3rd ETF

Ex-U.S. Equity Factor Model Horse Race

March 25, 2020 • Posted in Equity Premium

Which equity factor model is best among non-U.S. global stock markets? In other words, what market/accounting variables are most important to investors screening non-U.S. stocks? In his February 2020 paper entitled “A Comparison of Global Factor Models”, Matthias Hanauer compares eight widely used equity factor models on a common dataset spanning stocks from 47 non-U.S. developed and emerging markets based on gross Sharpe ratio. The models are:

  1. The Capital Asset Pricing Model (CAPM) – market.
  2. FF3 (3-factor) – market, size, book-to-market.
  3. FF5 (5-factor) – adds profitability based on operating profits-to-book equity and investment to FF3.
  4. FF6 (6-factor) – adds momentum to FF5.
  5. FF6CP (6-factor) – substitutes cash-based operating profits-to-assets for the profitability factor used in FF6.
  6. HXZ4, or q-factor (4-factor) – market, size, profitability based on return-on-equity (ROE), investment.
  7. SY4, or Mispricing (4-factor) – market, size, management, performance.
  8. FF6CP,m (6-factor) – substitutes a monthly value factor for the annual value factor in FF6CP.

He employs annual accounting data because quarterly data are unavailable in many countries at the beginning of my sample period. Using factor input and return data for 56,171 stocks across developed and emerging markets during 1990 through 2018, he finds that: (more…)

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Daily Email Updates
Login
Questions?